OFFICIAL STATEMENT DATED FEBRUARY 6, 2014

Transcription

1 OFFICIAL STATEMENT DATED FEBRUARY 6, 2014 IN THE OPINION OF BOND COUNSEL, INTEREST ON THE BONDS IS EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES UNDER EXISTING LAW AND INTEREST ON THE BONDS IS NOT INCLUDED IN THE ALTERNATIVE MINIMUM TAXABLE INCOME OF INDIVIDUALS OR CORPORATIONS, EXCEPT FOR CERTAIN ALTERNATIVE MINIMUM TAX CONSEQUENCES FOR CORPORATIONS. SEE TAX MATTERS FOR A DISCUSSION OF BOND COUNSEL S OPINION. THE DISTRICT WILL DESIGNATE THE BONDS AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS. NEW ISSUE - Book-Entry-Only RATING: Moody s... A1 Underlying S&P (BAM)... AA/Stable See MUNICIPAL BOND INSURANCE and RATINGS herein $9,050,000 SIENNA PLANTATION MUNICIPAL UTILITY DISTRICT NO. 3 (A Political Subdivision of the State of Texas, located within Fort Bend County) UNLIMITED TAX REFUNDING BONDS, SERIES 2014 The $9,050,000 Sienna Plantation Municipal Utility District No. 3 Unlimited Tax Refunding Bonds, Series 2014 (the "Bonds") are obligations of Sienna Plantation Municipal Utility District No. 3 (the "District") and are not obligations of the State of Texas; the City of Missouri City, Texas; Fort Bend County, Texas; or any political subdivision or entity other than the District. Neither the faith and credit nor the taxing power of the State of Texas; the City of Missouri City, Texas; Fort Bend County, Texas; nor any entity other than the District is pledged to the payment of the principal of or interest on the Bonds. Dated: March 1, 2014 Due: March 1, as shown below Interest on the Bonds will accrue from March 1, 2014, and will be payable September 1 and March 1 of each year ("Interest Payment Date"), commencing September 1, 2014 until maturity or prior redemption. Principal of the Bonds is payable to the registered owner(s) of the Bonds (the "Bondholder(s)") at Amegy Bank of Texas, N.A., Houston, Texas, (sometimes hereinafter called the "Paying Agent" or the "Paying Agent/Registrar"), upon surrender of the Bonds for payment at maturity or upon prior redemption. Unless otherwise agreed between the Paying Agent and a Bondholder, interest on the Bonds is dated as of the Interest Payment Date and payable to each Bondholder, as shown on the records of the Paying Agent/Registrar on the close of business on the 15th day of the calendar month next preceding each Interest Payment Date (the "Record Date"). The Bonds will be issued only in fully registered form in the denomination of $5,000 of principal amount, or any integral multiple thereof. The Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"), which will act as securities depository for the Bonds. Beneficial owners of the Bonds will not receive physical certificates representing the Bonds, but will receive a credit balance on the books of the nominees of such beneficial owners. So long as Cede & Co. is the registered owner of the Bonds, the principal of and interest on the Bonds will be paid by the Paying Agent directly to DTC, which will, in turn, remit such principal and interest to its participants for subsequent disbursement to the beneficial owners of the Bonds as described herein. See "THE BONDS Book-Entry-Only System." The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Bonds by BUILD AMERICA MUTUAL ASSURANCE COMPANY. See MUNICIPAL BOND INSURANCE. PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND INITIAL REOFFERING YIELDS Initial Reoffering Yield (a) Initial Reoffering Yield (a) Maturity (March 1) Principal Amount Interest Rate Maturity (March 1) Principal Amount Interest Rate 2015 $ 60, % 0.500% 2022 $ 825, % 2.650% , % 0.650% 2023(b) 850, % 2.920% , % 0.940% 2024(b) 560, % 3.080% , % 1.300% 2025(b) 580, % 3.210% , % 1.580% 2026(b) 260, % 3.410% , % 2.000% 2027(b) 565, % 3.540% , % 2.370% 2028(b) 795, % 3.660% (a) Information with respect to the initial reoffering yields of the Bonds is the responsibility of the Underwriters (herein defined). Initial reoffering yields represent the initial offering price, which may be changed for subsequent purchasers. The initial yield indicated above represents the yield resulting when priced to maturity. (b) Bonds maturing on March 1, 2023, and thereafter, shall be subject to redemption and payment at the option of the District, in whole or from time to time in part on March 1, 2022, or on any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption. In addition, the Underwriters may designate one or more maturities as Term Bonds. See THE BONDS Redemption of the Bonds. The Bonds, when issued, will constitute valid and binding obligations of the District, payable from the proceeds of a continuing, direct annual ad valorem tax, without legal limitation as to rate or amount, levied against all taxable property within the District. Neither the State of Texas; the City of Missouri City, Texas; Fort Bend County, Texas; nor any other entity other than the District shall be obligated to pay the principal of or interest on the Bonds. Neither the faith and credit nor the taxing power of the State of Texas; the City of Missouri City, Texas; Fort Bend County, Texas; nor any entity other than the District is pledged to the payment of the principal of or interest on the Bonds. The proceeds of the Bonds will be applied, together with lawfully available funds, to refund certain outstanding bonds of the District and to pay certain costs incurred in connection with the issuance of the Bonds in order to achieve gross and net present value savings in the District's annual debt service expense (see "PLAN OF FINANCING - Sources and Uses of Funds"). THE BONDS ARE SUBJECT TO SPECIAL INVESTMENT CONSIDERATIONS DESCRIBED HEREIN. See "INVESTMENT CONSIDERATIONS." The Bonds are offered subject to prior sale, when, as and if issued by the District and accepted by the Underwriters, subject to the approval of the Attorney General of Texas and of Allen Boone Humphries Robinson LLP, Houston, Texas, Bond Counsel. Certain legal matters will be passed upon for the Underwriters by Coats, Rose, Yale, Ryman & Lee, P.C., Houston, Texas, Underwriters Counsel. Delivery of the Bonds is expected on or about March 6, SAMCO Capital Markets, Inc. FirstSouthwest

2 USE OF INFORMATION IN OFFICIAL STATEMENT No dealer, broker, salesman or other person has been authorized to give any information, or to make any representations, other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by the District or the Underwriters. All of the summaries of the statutes, resolutions, orders, contracts, audits, engineering and other related reports set forth in this Official Statement are made subject to all of the provisions of such documents. These summaries do not purport to be complete statements of such provisions and reference is made to such documents, copies of which are available from Bond Counsel upon payment of duplication costs, for further information. This Official Statement is not to be used in connection with an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. Build America Mutual Assurance Company ( BAM ) makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading MUNICIPAL BOND INSURANCE and APPENDIX D - Specimen Municipal Bond Insurance Policy. This Official Statement contains, in part, estimates, assumptions and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates, assumptions or matters of opinion, or as to the likelihood that they will be realized. Any information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or other matters described herein since the date hereof. The District has agreed to keep this Official Statement current by amendment or sticker to reflect material changes in the affairs of the District and to the extent such information actually comes to its attention, the other matters described in this Official Statement, until delivery of the Bonds to the Underwriters and thereafter only as specified in "OFFICIAL STATEMENT - Updating of Official Statement" and "CONTINUING DISCLOSURE OF INFORMATION." TABLE OF CONTENTS Page USE OF INFORMATION IN OFFICIAL STATEMENT... 1 INTRODUCTION... 3 SALE AND DISTRIBUTION OF THE BONDS... 3 Underwriting... 3 Prices and Marketability... 3 Securities Laws... 3 Delivery of Official Statements... 4 MUNICIPAL BOND INSURANCE... 4 Bond Insurance Policy... 4 Build America Mutual Assurance Company... 4 RATINGS... 5 OFFICIAL STATEMENT SUMMARY... 6 SELECTED FINANCIAL INFORMATION THE BONDS General Paying Agent/Registrar Book-Entry-Only System Use of Certain Terms in Other Sections of this Official Statement Registration, Transfer and Exchange Mutilated, Lost, Stolen or Destroyed Bonds Registration, Transfers and Exchanges Redemption of the Bonds Page Successor Paying Agent/Registrar Authority for Issuance Remaining Outstanding Bonds Source of Payment Issuance of Additional Debt No Arbitrage Annexation by the City of Missouri City Consolidation Defeasance Legal Investment and Eligibility to Secure Public Funds in Texas Registered Owners' Remedies and Bankruptcy PLAN OF FINANCING Use and Distribution of Bond Proceeds The Refunded Bonds Remaining Outstanding Bonds Sources and Uses of Funds THE DISTRICT Authority Description Community Facilities Management of the District Investment Policy Consultants Tax Assessor/Collector

3 Bookkeeper Utility System Operator Auditor Engineer Bond Counsel Financial Advisor Special Consultant Related to Issuance of the Bonds DEVELOPMENT WITHIN THE DISTRICT DEVELOPER AND PRINCIPAL LANDOWNER SIENNA PLANTATION Description of the Project DISTRICT DEBT Debt Service Requirement Schedule Bonded Indebtedness Estimated Direct and Overlapping Debt Statement Debt Ratios TAXING PROCEDURES Authority to Levy Taxes Property Tax Code and County-wide Appraisal District28 Property Subject to Taxation by the District Tax Abatement Valuation of Property for Taxation District and Taxpayer Remedies Levy and Collection of Taxes District's Rights in the Event of Tax Delinquencies TAX DATA General Tax Rate Limitation Maintenance Tax Contract Tax Exemptions Additional Penalties Tax Rate Calculations Estimated Overlapping Taxes Assessed Valuation Summary Historical Tax Collections Tax Rate Distribution Principal Taxpayers THE SYSTEM General Historical Operations of the System Regulation Master District Contract Water Supply Wastewater Treatment Flood Protection and Drainage Facilities Federal Emergency Management Agency Study Year Flood Plain Construction of Future Internal Drainage Facilities Fire Protection INVESTMENT CONSIDERATIONS General Factors Affecting Taxable Values and Tax Payments.. 37 District Tax Levy and Overlapping District Taxes and Functions Tax Collection Limitations Registered Owners' Remedies and Bankruptcy Marketability Bond Insurance Risk Factors Future Debt Competitive Nature of Houston Area Residential Housing Market Continuing Compliance with Certain Covenants Approval of the Bonds Environmental Regulations LEGAL MATTERS Legal Opinions No-Litigation Certificate No Material Adverse Change TAX MATTERS Tax Accounting Treatment of Original Issue Premium 44 Qualified Tax-Exempt Obligations VERIFICATION OF MATHEMATICAL CALCULATIONS CONTINUING DISCLOSURE OF INFORMATION 45 Annual Reports OFFICIAL STATEMENT General Experts Certification as to Official Statement Updating of Official Statement CONCLUDING STATEMENT APPENDIX A - AERIAL PHOTOGRAPH OF THE DISTRICT APPENDIX B - FINANCIAL STATEMENTS OF THE DISTRICT APPENDIX C - SPECIMEN MUNICIPAL BOND INSURANCE POLICY 2

4 INTRODUCTION This Official Statement provides certain information in connection with the issuance by Sienna Plantation Municipal Utility District No. 3 (the "District") of its Unlimited Tax Refunding Bonds, Series 2014 (the "Bonds"). The Bonds are issued pursuant to a resolution ("Bond Resolution") adopted by the Board of Directors of the District, and pursuant to the Constitution and general laws of the State of Texas, particularly Chapters 49 and 54 of the Texas Water Code, as amended, and an election held on May 1, 1999, and passed by a majority of the participating voters. Certain capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Bond Resolution, except as otherwise indicated herein. This Official Statement also includes information about the District and certain reports and other statistical data. The summaries and references to all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive and each summary and reference is qualified in its entirety by reference to each such document, statute, report or instrument. SALE AND DISTRIBUTION OF THE BONDS Underwriting SAMCO Capital Markets, Inc. and FirstSouthwest (referred to herein as the "Underwriters") have agreed to purchase the Bonds from the District for $9,389, (being the par amount of the Bonds, less an underwriters discount of $73,585.00, plus an original issue premium on the Bonds of $413,130.10) plus accrued interest on the Bonds to the date of delivery. The Underwriters obligation is to purchase all of the Bonds, if any Bonds are purchased. Prices and Marketability The District has no control over the reoffering yields or prices of the Bonds or over trading of the Bonds in the secondary market. Moreover, there is no assurance that a secondary market will be made in the Bonds. If there is a secondary market, the difference between the bid and asked prices of the Bonds may be greater than the difference between the bid and asked prices of bonds of comparable maturity and quality issued by more traditional municipal entities, as bonds of such entities are more generally bought, sold or traded in the secondary market. The delivery of the Bonds is conditioned upon the receipt by the District of a certificate executed and delivered by the Underwriters on or before the date of delivery of the Bonds stating the prices at which a substantial amount of the Bonds of each maturity has been sold to the public. For this purpose, the term "public" shall not include any person who is a bondhouse, broker, dealer or similar person or organization acting in the capacity of underwriters or wholesaler. Otherwise, the District has no understanding with the Underwriters regarding the reoffering yields or prices of the Bonds. Information concerning reoffering yields or prices is the responsibility of the Underwriters. The prices and other terms with respect to the offering and sale of the Bonds may be changed from time-to-time by the Underwriters after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering prices, including sales to dealers who may sell the Bonds into investment accounts. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER - ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. Securities Laws No registration statement relating to the Bonds has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, in reliance upon exemptions provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been registered or qualified under the securities acts of any other jurisdictions. The District assumes no responsibility for registration or qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be offered, sold, or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds should not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions. 3

5 Delivery of Official Statements The District shall furnish to the Underwriters (and to each participating underwriter of the Bonds, within the meaning of SEC Rule 15c2-12(a), designated by the Underwriters), within seven (7) business days after the sale date, the aggregate number of Official Statements agreed upon between the District and the Underwriters. The District also shall furnish to the Underwriters a like number of any supplements or amendments approved and authorized for distribution by the District for dissemination to potential underwriters of the Bonds, as well as such additional copies of the Official Statement or any such supplements or amendments as the Underwriters may reasonably request prior to the 90 th day after the end of the underwriting period described in SEC Rule 15c2-12(e)(2). The District shall pay the expense of preparing the number of copies of the Official Statement agreed upon between the District and the Underwriters and an equal number of any supplements or amendments issued on or before the delivery date, but the Underwriters shall pay for all other copies of the Official Statement or any supplement or amendment thereto. MUNICIPAL BOND INSURANCE Bond Insurance Policy Concurrently with the issuance of the Bonds, Build America Mutual Assurance Company ( BAM ) will issue its Municipal Bond Insurance Policy for the Bonds (the Policy ). The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Build America Mutual Assurance Company BAM is a New York domiciled mutual insurance corporation. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only insure obligations of states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM. The address of the principal executive offices of BAM is: 1 World Financial Center, 27 th Floor, 200 Liberty Street, New York, New York 10281, its telephone number is: , and its website is located at: BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law. BAM s financial strength is rated AA/Stable by Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ). An explanation of the significance of the rating and current reports may be obtained from S&P at The rating of BAM should be evaluated independently. The rating reflects the S&P s current assessment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Bonds, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Bonds. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Bonds on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Policy), and BAM does not guarantee the market price or liquidity of the Bonds, nor does it guarantee that the rating on the Bonds will not be revised or withdrawn. Capitalization of BAM BAM s total admitted assets, total liabilities, and total capital and surplus, as of September 30, 2013 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $482.7 million, $12.1 million and $470.6 million, respectively. 4

6 BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions. BAM s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on BAM s website at is incorporated herein by reference and may be obtained, without charge, upon request to BAM at its address provided above (Attention: Finance Department). Future financial statements will similarly be made available when published. BAM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading MUNICIPAL BOND INSURANCE. RATINGS It is expected that Standard and Poor s Rating Services, a Standard & Poor s Financial Services LLC business ( S&P ), will assign its municipal bond rating of AA/Stable to this issue of Bonds with the understanding that upon delivery of the Bonds, a municipal bond insurance policy insuring the timely payment of the principal of and interest on the Bonds will be issued by Build America Mutual Assurance Company ( BAM or the Insurer ). The rating reflects only the view of S&P and the District makes no representation as to the appropriateness of the rating. There is no assurance that such rating will continue for any given period of time or that it will not be revised or withdrawn entirely by S&P if, in its judgment, circumstances warrant. Any such revision or withdrawal of the rating may have an adverse effect on the market price of the Bonds. Moody s Investor Service ( Moody s ) has assigned an underlying credit rating of A1 to the Bonds. An explanation of the ratings may be obtained from Moody s, 7 World Trade Center at 250 Greenwich Street, New York, New York Furthermore, a security rating is not a recommendation to buy, sell or hold securities. There is no assurance that the rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by Moody s, if, in their judgment, circumstances so warrant. Any such revisions or withdrawal of such rating may have an adverse effect on the market price of the Bonds. [Remainder of Page Intentionally Left Blank] 5

7 OFFICIAL STATEMENT SUMMARY The following material is a summary of certain information contained herein and is qualified in its entirety by the more detailed information and financial statements appearing elsewhere in this Official Statement. The summary should not be detached and should be used in conjunction with the more complete information contained herein. A full review should be made of the entire Official Statement and of the documents summarized or described herein. THE BONDS The Issuer... Sienna Plantation Municipal Utility District No. 3 (the "District"), a political subdivision of the State of Texas, is located in Fort Bend County, Texas. See "THE DISTRICT." The Issue... $9,050,000 Sienna Plantation Municipal Utility District No. 3 Unlimited Tax Refunding Bonds, Series 2014, are dated March 1, 2014 and bear interest at the rates set forth on the cover page thereof. The Bonds are scheduled to mature on March 1, 2015 through March 1, 2028, inclusive. Interest accrues from March 1, 2014 and is payable September 1, 2014, and each March 1 and September 1 thereafter until the earlier of stated maturity or prior redemption. See "THE BONDS." Book Entry Only... The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Bonds and will be deposited with DTC. See "THE BONDS - Book-Entry Only System." Source of Payment... The Bonds are payable from a continuing, direct annual ad valorem tax, unlimited as to rate or amount, levied against all taxable property within the District. The Bonds are obligations of the District and are not obligations of the City of Missouri City, Texas; Fort Bend County, Texas; the State of Texas; or any entity other than the District. See "THE BONDS - Source of Payment." Authority for Issuance... The Bonds are the fourth series of bonds issued out of an aggregate of $29,280,000 principal amount unlimited tax refunding bonds authorized by the District s voters of which $28,184, will remain authorized but unissued after the delivery of the Bonds. Voters within the District have also authorized the issuance of $48,800,000 principal amount of bonds of unlimited tax bonds for purposes of water, wastewater, and drainage and $440,000 unlimited tax bonds for fire protection facilities, all of which have been issued. See "THE BONDS Authority for Issuance." Use of Proceeds... A portion of the proceeds of the Bonds will be applied to currently refund $2,225,000 in principal amount of the District s $3,325,000 Unlimited Tax Bonds, Series 2005 (the "Series 2005 Bonds"), $2,530,000 of the District s $5,400,000 Unlimited Tax Bonds, Series 2005A (the Series 2005A Bonds ), $2,395,000 of the District s $6,675,000 Unlimited Tax Bonds, Series 2005B (the Series 2005B Bonds ), $2,030,000 of the District s $6,000,000 Unlimited Tax Bonds, Series 2006 (the Series 2006 Bonds ) and to pay administrative and issuance costs related to the issuance of the Bonds. The Series 2005 Bonds, the Series 2005A Bonds, the Series 2005B Bonds, and the Series 2006 Bonds are referred to herein as the "Refunded Bonds." See "PLAN OF FINANCING." 6

8 Remaining Outstanding Bonds... In addition to the Refunded Bonds, the District has issued $3,300,000 Unlimited Tax Bonds, Series 2001 (the "Series 2001 Bonds"); $2,500,000 Unlimited Tax Bonds, Series 2003 (the Series 2003 Bonds ); $5,450,000 Unlimited Tax Bonds, Series 2003A (the Series 2003A Bonds ); $3,225,000 Unlimited Tax Bonds, Series 2004 (the Series 2004 Bonds ); $3,325,000 Unlimited Tax Bonds, Series 2005 (the "Series 2005 Bonds"); $5,400,000 Unlimited Tax Bonds, Series 2005A (the "Series 2005A Bonds"); $6,675,000 Unlimited Tax Bonds, Series 2005B (the "Series 2005B Bonds"); $6,000,000 Unlimited Tax Bonds, Series 2006 (the "Series 2006 Bonds"); $6,800,000 Unlimited Tax Bonds, Series 2007 (the "Series 2007 Bonds"); $6,565,000 Unlimited Tax Bonds, Series 2008 (the "Series 2008 Bonds"); $5,105,000 Unlimited Tax Refunding Bonds, Series 2010 (the "Series 2010 Refunding Bonds"), $5,205,000 Unlimited Tax Refunding Bonds, Series 2010A (the Series 2010A Refunding Bonds ) and $2,795,000 Unlimited Tax Refunding Bonds, Series 2012 (the Series 2012 Refunding Bonds ). The Bonds are the fourth issue of a total authorization of $29,280,000 of bonds authorized by District voters for refunding of outstanding bonds, of which $28,184, will remain unissued after the delivery of the Bonds. Excluding the Refunded Bonds, $33,400,000 principal amount of the bonds originally issued shall remain outstanding (the "Remaining Outstanding Bonds"). See "THE BONDS Remaining Outstanding Bonds, and - Authority for Issuance." Municipal Bond Insurance... Build America Mutual Assurance Company ( BAM ). See MUNICIPAL BOND INSURANCE. Municipal Bond Insurance and Rating... Standard & Poor s Rating Services (BAM) AA (stable outlook). See MUNICIPAL BOND INSURANCE. Bond Counsel... Allen Boone Humphries Robinson LLP, Houston, Texas, Bond Counsel. See "LEGAL MATTERS." Financial Advisor... RBC Capital Markets, LLC, Houston, Texas Underwriters Counsel... Coats, Rose, Yale, Ryman & Lee, P.C., Houston, Texas. Verification Agent... Grant Thornton L.L.P., Certified Public Accountants, Verification Agent. See "THE DISTRICT Special Consultants Related to Issuance of the Bonds" and "VERIFICATION OF MATHEMATICAL CALCULATIONS." THE DISTRICT Description... The District was created by the Texas Natural Resource Conservation Comission ( TNRCC ), on March 10, 1997, and operates pursuant to Chapters 49 and 54 of the Texas Water Code, as amended and Article XVI, Section 59 of the Texas Constitution. The District contains approximately 1,229 acres of land. The District is part of the development encompassed in the Sienna Plantation Development Agreement and subsequent amendments, (collectively, defined as Sienna Plantation ) which contains approximately 10,500 acres. The District is located entirely within Fort Bend County, Texas, approximately 22 miles southwest of the central business district of the 7

9 City of Houston, Texas; approximately 1 mile west of the intersection of the Fort Bend Parkway Toll Road and State Highway 6; approximately 8 miles west of the intersection of Texas State Highway 6 and Texas State Highway 288; and approximately 7 miles east of the intersection of Texas State Highway 6 and U.S. Highway 59. The District is located entirely within the boundaries of the Fort Bend Independent School District and lies within the extraterritorial jurisdiction of the City of Missouri City, except for a small portion that is within the corporate limits of the City. See "THE DISTRICT - Description." Sienna Plantation... The District is part of a 10,500-acre community known as "Sienna Plantation." This 10,500-acre community consists of four distinct developments. Since 1997, Sienna/Johnson and Related Entities (hereinafter defined) acquired approximately 6,700 acres in Sienna Plantation and to date have developed approximately 6,552 acres. As of December 1, 2013 Sienna/Johnson and Related Entities own approximately 148 undeveloped but developable acres. In 2013, Toll Brothers, Inc. ( Toll Brothers ) purchased approximately 3,800 acres within Sienna Plantation. Although development has not commenced to date, four municipal utility districts have been created to serve Toll Brothers property. Sienna Point, a 1,035 acre rural estate lot development has been completed with 272 lots and as of December 1, 2013 has 172 completed homes and 1 home under construction. The remaining 324 acres within Sienna Plantation are currently owned by Sienna 325 LP, an affiliate of the Developer, and Taylor Morrison of Texas, Inc., and are undeveloped and currently are being marketed for sale. Sienna Plantation Municipal Utility District No. 13 has been created to serve such property. Development within the District... Development of the majority of the property within the District has been completed by Sienna/Johnson Development L.P., ("Developer" or "SJD") whose general partner is Sienna/Johnson Development GP, L.L.C. Approximately 956 acres (2,383 lots) within the District has been developed as various single-family residential subdivisions. As of December 1, 2013, 2,381 homes were complete and occupied; no homes were complete and unoccupied and 2 homes were under construction. The remaining land within the District includes approximately 32 acres of undeveloped but developable land, approximately 118 acres comprising a portion of the golf course and clubhouse, and approximately 124 acres that are undevelopable. The remaining developable acres are owned by Toll Brothers. See "DEVELOPMENT WITHIN THE DISTRICT." Developer and Principal Land Owner... The land in the District was developed by the Developer. Toll Brothers owns approximately 32 acres of undeveloped but developable acres, development of which is being managed by Johnson SS Management, LLC. See THE DEVELOPER AND PRINCIPAL LANDOWNER. 8

10 Regional Facilities... Sienna Plantation Municipal Utility District No. 1 (the "Master District") is the municipal utility district created to provide the water supply and wastewater treatment facilities, as well as the regional water distribution, regional wastewater collection trunk lines and regional stormwater collection trunk lines necessary to serve Sienna Plantation, including the District. See "THE SYSTEM." Overlapping Districts and Taxes... Sienna Plantation Levee Improvement District ( SPLID ) is the levee improvement district created to provide the levee, detention ponds, external and interior drainage channels and outfall facilities necessary to serve Sienna Plantation. Approximately 9,832 acres of Sienna Plantation, including the entire District, is located within SPLID. SPLID will finance facilities to accomplish flood protection and accommodate storm water drainage within SPLID, including the District. SPLID currently levies a tax on property located within its boundaries, including the District, which tax is in addition to the tax levied by the District. SPLID levied a total tax of $0.49 per $100 of assessed valuation for the 2013 tax year. SPLID currently has $78,785,000 principal amount of bonds outstanding and is authorized to issue an additional $19,285,000 in unlimited tax bonds, $47,150,000 in unlimited tax park bonds and $41,050,000 for refunding purposes. See "TAX DATA - Estimated Overlapping Taxes" and "INVESTMENT CONSIDERATIONS - Factors Affecting Taxable Values and Tax Payments, and District Tax Levee, and - Overlapping District Taxes and Functions." Development Agreement... The principal developers in Sienna Plantation are parties to the Sienna Plantation Joint Development Agreement, dated February 19, 1996, with the City of Missouri City, as amended by nine amendments (collectively, the "Development Agreement") pursuant to which the City and the landowners stipulate the City's regulatory authority over the development of Sienna Plantation, establish certain restrictions and commitments related to the development of Sienna Plantation, set forth a formula for determining the timing of annexation of land within Sienna Plantation by the City, and identify and establish a master plan for the development of Sienna Plantation. The development of all land within Sienna Plantation is governed by the provisions of the Development Agreement. See "DEVELOPMENT WITHIN THE DISTRICT - Development Agreement." Strategic Partnership Agreement... The District has entered into a Strategic Partnership Agreement with the City. The Agreement provides, among other things, the terms under which the City can annex or dissolve the District. Once the District is dissolved the Bonds become obligations of the City. The District also entered into a Fire Protection Agreement on March 19, 2001 with the City. See "THE BONDS Annexation by the City of Missouri City." INVESTMENT CONSIDERATIONS THE DISTRICT'S TAX IS LEVIED ONLY ON THE PROPERTY LOCATED WITHIN THE DISTRICT. THEREFORE, THE INVESTMENT SECURITY AND QUALITY OF THE BONDS IS DEPENDENT UPON THE SUCCESSFUL DEVELOPMENT OF PROPERTY LOCATED WITHIN THE DISTRICT AND THE PAYMENT AND COLLECTION OF TAXES LEVIED THEREON. THE BONDS ARE SUBJECT TO CERTAIN INVESTMENT CONSIDERATIONS. PROSPECTIVE PURCHASERS SHOULD REVIEW THE ENTIRE OFFICIAL STATEMENT BEFORE MAKING AN INVESTMENT DECISION, INCLUDING PARTICULARLY THE SECTION OF THE OFFICIAL STATEMENT ENTITLED "INVESTMENT CONSIDERATIONS." 9

11 SELECTED FINANCIAL INFORMATION (UNAUDITED) 2013 Assessed Valuation... $651,189,256 (a) (100% of market value as of January 1, 2013) See "TAX DATA" and "TAXING PROCEDURES." Direct Debt: Remaining Outstanding Bonds... $ 33,400,000 (b) The Bonds... 9,050,000 Total... $ 42,450,000 Estimated Overlapping Debt... $ 54,307,682 (c) Total Direct and Estimated Overlapping Debt... $ 96,757,682 Direct Debt Ratios: As a percentage of the 2013 Assessed Valuation % Direct and Estimated Overlapping Debt Ratios: As a percentage of the 2013 Assessed Valuation % Debt Service Fund (as of January 22, 2014)... $ 1,758,605 General Fund (as of January 22, 2014)... $ 3,459,649 Construction Fund (as of January 22, 2014)... $ 946, Tax Rate per $100 of Assessed Valuation Debt Service... $0.54 Maintenance Contract Tax Total... $0.71 Average Annual Debt Service Requirements on Remaining Outstanding Bonds and the Bonds ( )... $ 3,352,220 Maximum Annual Debt Service Requirement on Remaining Outstanding Bonds and the Bonds (2030)... $ 3,484,073 Tax Rate per $100 of Assessed Valuation Required to Pay Average Annual Debt Service Requirements on Remaining Outstanding Bonds and the Bonds ( ) at 95% Tax Collections Based Upon the 2013 Assessed Valuation ($651,189,256)... $0.55 Tax Rate per $100 of Assessed Valuation Required to Pay Maximum Annual Debt Service Requirement on Remaining Outstanding Bonds and the Bonds (2030) at 95% Tax Collections Based Upon the 2013 Assessed Valuation ($651,189,256)... $0.57 Number of Single-Family Homes as of December 1, ,383 (including 2 homes under construction) (a) As certified by the Fort Bend Central Appraisal District (the "Appraisal District"). (b) Excluding the Refunded Bonds. (c) See "DISTRICT DEBT - Estimated Direct and Overlapping Debt Statement." 10

12 $9,050,000 SIENNA PLANTATION MUNICIPAL UTILITY DISTRICT NO. 3 UNLIMITED TAX REFUNDING BONDS SERIES 2014 This Official Statement of Sienna Plantation Municipal Utility District No. 3 (the "District") is provided to furnish information with respect to the issuance by the District of its $9,050,000 Unlimited Tax Refunding Bonds, Series 2014 (the "Bonds"). The Bonds are issued pursuant to Article XVI, Section 59 of the Texas Constitution; Chapters 49 and 54 of the Texas Water Code, as amended; Chapter 1207 et. seq. of the Texas Government Code, as amended; an election held on May 1, 1999, and a resolution (the "Bond Resolution") adopted by the Board of Directors of the District (the "Board"). There follows in this Official Statement descriptions of the Bonds, the Developer, the Bond Resolution and certain information about the District and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from Allen Boone Humphries Robinson LLP, 3200 Southwest Freeway, Suite 2600, Houston, Texas 77027, upon payment of the costs of duplication thereof. Certain capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Bond Resolution, except as otherwise indicated herein. THE BONDS General The following is a description of some of the terms and conditions of the Bonds, which description is qualified in its entirety by reference to the Bond Resolution of the Board of Directors of the District (the "Board") authorizing the issuance of the Bonds. A copy of the Bond Resolution may be obtained from the District upon written request made to Allen Boone Humphries Robinson LLP. The $9,050,000 Sienna Plantation Municipal Utility District No. 3 Unlimited Tax Refunding Bonds, Series 2014, are dated March 1, 2014, with interest payable September 1, 2014, and each March 1 and September 1 thereafter until maturity or prior redemption ("Interest Payment Date"). The Bonds are scheduled to mature on March 1, 2015 through March 1, 2028, inclusive. Interest accrues from March 1, 2014 and is payable September 1, 2014, and each March 1 and September 1 thereafter until the stated maturity or prior redemption. Principal of the Bonds will be payable to the registered owners (the "Registered Owners") at maturity upon presentation at the principal payment office of the Paying Agent/Registrar, initially Amegy Bank of Texas, N.A., Houston, Texas, (the "Paying Agent/Registrar"). Interest on the Bonds will be payable dated as of the Interest Payment Date, and disbursed to Registered Owners as shown on the records of the Paying Agent/Registrar at the close of business on the 15th calendar day of the month next preceding the Interest Payment Date (the "Record Date"). Paying Agent/Registrar The initial Paying Agent/Registrar is Amegy Bank of Texas, N.A., Houston, Texas, (the "Paying Agent/Registrar"). The Bonds are being issued in fully registered form in integral multiples of $5,000 of principal amount. Interest on the Bonds will be payable semiannually by the Paying Agent/Registrar by check mailed on each Interest Payment Date by the Paying Agent/Registrar to the Registered Owners at the last known address as it appears on the Paying Agent/Registrar's books on the Record Date. Book-Entry-Only System This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company ("DTC"), New York, New York, while the Bonds are registered in its nominee s name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The District believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The District cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participant, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. 11

13 The Depository Trust Company ("DTC"), New York NY, will act as securities depository for the securities (the "Securities"). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be required by an authorized representative of DTC. One fully-registered Security certificate will be issued for each of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC. If however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized bookentry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchase of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities in discontinued. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. 12

14 Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issue as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name, " and will be the responsibility of such Participant and not of DTC, Agent or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. A Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to Tender/Remarketing Agent, and shall effect delivery of such Securities by causing the Direct Participant to transfer the Participant's interest in the Securities, on DTC's records to Tender/Remarketing Agent. The requirement for physical delivery of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC's records and followed by a book-entry credit of tendered Securities to Tender/Remarketing Agent s DTC account. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. The information in the section concerning DTC and DTC's book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof. Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Bonds are in the book-entry form, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the book-entry system, and (ii) except as described above, notices that are to be given to registered owners under the Bond Resolution will be given only to DTC. Registration, Transfer and Exchange In the event the Book-Entry-Only system is discontinued, the Bonds are transferable only on the bond register kept by the Paying Agent/Registrar upon surrender at the principal payment office of the Paying Agent/Registrar in Houston, Texas. A Bond may be assigned by the execution of an assignment form on the Bonds or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. At any time after the date of initial delivery, any Bond may be transferred upon its presentation and surrender at the designated offices of the Paying Agent/Registrar, duly endorsed for transfer or accompanied by an assignment duly executed by the Bondholder. The Bonds are exchangeable upon presentation at the designated office(s) of the Paying Agent/Registrar, for an equal principal amount of Bonds of the same maturity in authorized denominations. To the extent possible, new Bonds issued in exchange or transfer of Bonds will be delivered to the Bondholder or assignee of the Bondholder within not more than three (3) business days after the receipt by the Paying Agent/Registrar of the request in proper form to transfer or exchange the Bonds. New Bonds registered and delivered in an exchange or transfer shall be in the denomination of $5,000 in principal amount for a Bond, or any integral multiple thereof for any one maturity and shall bear interest at the same rate and be for a like aggregate principal or maturity amount as the Bond or Bonds surrendered for exchange or transfer. Neither the Paying Agent/Registrar nor the District is required to issue, transfer, or exchange any Bond during a period beginning at the opening of business on a Record Date and ending at the close of business on the next succeeding Interest Payment Date or to transfer or exchange any Bond selected for redemption, in whole or in part, beginning fifteen (15) calendar days prior to, and ending on the date of the mailing 13

15 of notice of redemption, or where such redemption is scheduled to occur within thirty (30) calendar days. No service charge will be made for any transfer or exchange, but the District or Paying Agent/Registrar may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith. Mutilated, Lost, Stolen or Destroyed Bonds In the event the Book-Entry-Only System should be discontinued, the District has agreed to replace mutilated, destroyed, lost or stolen Bonds upon surrender of the mutilated Bonds, on receipt of satisfactory evidence of such destruction, loss or theft, and receipt by the District and Registrar of security or indemnity to hold them harmless. Upon the issuance of a new bond the District may require payment of taxes, governmental charges and other expenses (including the fees and expenses of the Registrar), bond printing and legal fees in connection with any such replacement. Registration, Transfers and Exchanges In the event the Book-Entry-Only System should be discontinued, the Bonds may be transferred and exchanged on the registration books of the Registrar only upon presentation and surrender thereof to the Registrar or its corporate trust office and such transfer or exchange shall be without expenses or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. A Bond may be assigned by the execution of an assignment form on the Bonds or by other instrument of transfer and assignment acceptable to the Registrar. A new Bond or Bonds will be delivered by the Registrar, in lieu of the Bonds being transferred or exchanged, at the principal payment office of the Registrar, or sent by the United States mail, first class, postage prepaid, to the new registered owner or his designee. To the extent possible, new Bonds issued in an exchange or transfer of Bonds will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Bonds to be cancelled, and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Registrar. New Bonds registered and delivered in an exchange or transfer shall be in any integral multiple of $5,000 for any one maturity and for a like aggregate principal amount as the Bond or Bonds surrendered for exchange or transfer. See Book-Entry-Only System herein defined for a description of the system to be utilized initially in regard to ownership and transferability of the Bonds. Redemption of the Bonds Bonds maturing on March 1, 2023, and thereafter shall be subject to redemption and payment at the option of the District, in whole or from time to time in part, on March 1, 2022, or on any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption. Notice of the exercise of the reserved right of redemption will be given by the Paying Agent/Registrar at least thirty (30) days prior to the redemption date by sending such notice by first class mail to the Registered Owner of each Bond to be redeemed in whole or in part at the address shown on the bond register. If less than all of the Bonds are redeemed at any time, the maturities of the Bonds to be redeemed shall be selected by the District. If less than all of the Bonds of a certain maturity are to be redeemed, the particular Bonds or portions thereof to be redeemed will be selected by the Paying Agent/Registrar prior to the redemption date by such random method as the Paying Agent/Registrar deems fair and appropriate in integral multiples of $5,000 within any one maturity. The Registered Owner of any Bond, all or a portion of which has been called for redemption, shall be required to present such Bond to the Paying Agent/Registrar for payment of the redemption price on the portion of the Bonds so called for redemption and issuance of a new Bond in the principal amount equal to the portion of such Bond not redeemed. Successor Paying Agent/Registrar Provision is made in the Bond Resolution for replacing the Paying Agent/Registrar. If the District replaces the Paying Agent/Registrar, such Paying Agent/Registrar shall, promptly upon the appointment of a successor, deliver the Paying Agent/Registrar's records to the successor Paying Agent/Registrar, and the successor Paying Agent/Registrar shall act in the same capacity as the previous Paying Agent/Registrar. Any successor Paying 14

16 Agent/Registrar selected by the District shall be a commercial bank; a trust company organized under the laws of the State of Texas; or other entity duly qualified and legally authorized to serve and perform the duties of the Paying Agent/Registrar for the Bonds. Authority for Issuance The District has previously issued ten series of bonds of the total authorization of $48,800,000 principal amount of unlimited tax bonds authorized by the District's voters and of $440,000 principal amount fire protection facility bonds. The Bonds are the fourth issue of a total authorization of $29,280,000 of bonds authorized by District voters for refunding of outstanding bonds, of which $28,184, will remain authorized and unissued after the delivery of the Bonds. The Bonds are issued pursuant to the Bond Resolution; Chapters 49 and 54 of the Texas Water Code; as amended; an election held on May 1, 1999 and Article XVI, Section 59 of the Texas Constitution. Remaining Outstanding Bonds In addition to the Refunded Bonds, the District has issued $3,300,000 Unlimited Tax Bonds, Series 2001 (the "Series 2001 Bonds"); $2,500,000 Unlimited Tax Bonds, Series 2003 (the "Series 2003 Bonds"); $5,450,000 Unlimited Tax Bonds, Series 2003A (the "Series 2003A Bonds"); $3,225,000 Unlimited Tax Bonds, Series 2004 (the Series 2004 Bonds ); $3,325,000 Unlimited Tax Bonds, Series 2005 (the "Series 2005 Bonds"); $5,400,000 Unlimited Tax Bonds, Series 2005A (the "Series 2005A Bonds"); $6,675,000 Unlimited Tax Bonds, Series 2005B (the "Series 2005B Bonds"); $6,000,000 Unlimited Tax Bonds, Series 2006 (the "Series 2006 Bonds"); $6,800,000 Unlimited Tax Bonds, Series 2007 (the "Series 2007 Bonds"); $6,565,000 Unlimited Tax Bonds, Series 2008 (the "Series 2008 Bonds"); $5,105,000 Unlimited Tax Refunding Bonds, Series 2010 (the "Series 2010 Refunding Bonds"), $5,205,000 Unlimited Tax Refunding Bonds, Series 2010A (the "Series 2010A Refunding Bonds"), and $2,795,000 Unlimited Tax Refunding Bonds, Series 2012 (the Series 2012 Refunding Bonds ). The Bonds are the fourth issue of a total authorization of $29,280,000 of bonds authorized by District voters for refunding of outstanding bonds, of which $28,184, will remain unissued after the delivery of the Bonds. Excluding the Refunded Bonds, $33,400,000 principal amount of the bonds originally issued shall remain outstanding (the "Remaining Outstanding Bonds"). Source of Payment The Bonds are payable from the proceeds of a continuing, direct annual ad valorem tax, without legal limitation as to rate or amount, levied against all taxable property located within the District. In the Bond Resolution, the District covenants to levy a sufficient tax to pay principal of and interest on the Bonds, with full allowance being made for delinquencies, costs of collections, Paying Agent/Registrar fees and Appraisal District fees. Tax proceeds, after deduction for collection costs, will be placed in the debt service fund and used solely to pay principal of and interest on the Bonds, the Outstanding Bonds, and additional bonds payable from taxes which may be issued, and Paying Agent/Registrar fees. The Bonds are obligations solely of the District and are not the obligations of the State of Texas; Fort Bend County, Texas; the City of Missouri City, Texas; or any entity other than the District. Issuance of Additional Debt The District's voters authorized the issuance of $48,800,000 unlimited tax bonds for water, wastewater and drainage purposes, $440,000 unlimited tax bonds for fire protection facilities, and $29,280,000 unlimited tax refunding bonds. The District has previously issued ten series of unlimited tax bonds issued by the District for the purpose of acquiring or constructing a waterworks, wastewater and storm drainage system to serve the District and for construction of fire protection facilities that used all of the voter authorization for $48,800,000 unlimited tax bonds and $440,000 fire protection bonds. After the issuance of the Bonds, the District will have $28,184, in authorized but unissued unlimited tax refunding bonds. The District may issue additional bonds with the approval of the Commission and upon approval of such bonds by the voters in the District. The Bond Resolution imposes no limitation on the amount of additional parity bonds which may be issued by the District (if authorized by the District's voters and approved by the Board and the Commission). 15

17 No Arbitrage The District will certify, on the date of delivery of the Bonds, that based upon all facts and estimates now known or reasonably expected to be in existence on the date the Bonds are delivered and paid for, the District reasonably expects that the proceeds of the Bonds will not be used in a manner that would cause the Bonds, or any portion of the Bonds, to be "arbitrage bonds" under the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations prescribed thereunder. Furthermore, all officers, employees and agents of the District have been authorized and directed to provide certifications of facts and estimates that are material to the reasonable expectations of the District as of the date the Bonds are delivered and paid for. In particular, all or any officers of the District are authorized to certify to the facts and circumstances and reasonable expectations of the District on the date the Bonds are delivered and paid for regarding the amount and use of the proceeds of the Bonds. Moreover, the District covenants that it shall make such use of the proceeds of the Bonds, regulate investment of proceeds of the Bonds and take such other and further actions and follow such procedures, including, without limitation, calculating the yield on the Bonds, as may be required so that the Bonds shall not become "arbitrage bonds" under the Code and the regulations prescribed from time to time thereunder. Annexation by the City of Missouri City Chapter 42, Texas Local Government Code, provides that, within the limits described therein, the unincorporated area contiguous to the corporate limits of any city comprises that city's extraterritorial jurisdiction. The size of extraterritorial jurisdiction depends in part on the city's population. For the City of Missouri City, the extraterritorial jurisdiction consists of all the contiguous unincorporated areas, not a part of any other city or any other city's extraterritorial jurisdiction and within two (2) miles of the corporate limits of Missouri City. With certain exceptions, a city may annex territory only within the confines of its extraterritorial jurisdiction. When a city annexes additional territory, the city's extraterritorial jurisdiction expands in conformity with such annexation. The District lies within the extraterritorial jurisdiction of the City of Missouri City (the "City"), except for a small portion that is within the corporate limits of the City. In the Development Agreement, the City agrees that the City shall not annex the property in the District before such time as (i) at least 95% of the developable acreage within the District has been developed with water, wastewater and drainage facilities, and (ii) the Developer has been reimbursed to the maximum extent permitted by the rules of the Commission or the City assumes any obligation for such reimbursement. Additionally, the District and the City entered into a Strategic Partnership Agreement pursuant to Section , Texas Local Government Code. Pursuant to the Strategic Partnership Agreement, the City will not annex the property in the District until (i) at least 90% of the developable acreage within the District has been developed with water, wastewater and drainage facilities, and (ii) the Developer has been reimbursed to the maximum extent permitted by the rules of the TCEQ or the City assumes any obligation for such reimbursement. Both of these conditions have been met, therefore the City may annex and dissolve the District at any time. If the District is annexed, the City of Missouri City will assume the District's assets and obligations (including the Bonds) and dissolve the District within ninety (90) days. No representation is made as to whether or not Missouri City will annex the District at any time in the future. Moreover, no representation is made concerning the ability of the City of Missouri City to make debt service payments should annexation occur. See "DEVELOPMENT WITHIN THE DISTRICT" and "Sienna Plantation - Development Agreement." Consolidation The District has the legal authority to consolidate with other districts and, in connection therewith, to provide for the consolidation of its assets (such as cash and the utility system) and liabilities (such as the Bonds), with the assets and liabilities of districts with which it is consolidating. Although no consolidation is presently contemplated by the District, no representation is made concerning the likelihood of consolidation in the future. Defeasance The Bond Resolution provides that the District may discharge its obligations to the Registered Owners of any or all of the Bonds to pay principal, interest and redemption price thereon in any manner permitted by law. Under current Texas law, such discharge may be accomplished either (i) by depositing with the Comptroller of Public Accounts of the State of Texas a sum of money equal to the principal of, premium, if any, and all interest to accrue on the Bonds to maturity or redemption or (ii) by depositing with any place of payment (paying agent) of the Bonds or other obligations of the District payable from revenues or from ad valorem taxes or both, amounts sufficient to provide for the payment and/or redemption of the Bonds; provided that such deposits may be invested and reinvested only in (a) direct noncallable obligations of the United States of America, (b) non-callable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the 16

18 agency or instrumentality and that, on the date the governing body of the District adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (c) non-callable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the District adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and which mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment and/or redemption of the Bonds. Upon such deposit as described above, such Bonds shall no longer be regarded as outstanding or unpaid. After firm banking and financial arrangements for the discharge and final payment or redemption of the Bonds have been made as described above, all rights of the District to initiate proceedings to call the Bonds for redemption or take any other action amending the terms of the Bonds are extinguished; provided, however, that the right to call the Bonds for redemption is not extinguished if the District: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Bonds for redemption; (ii) gives notice of the reservation of that right to the owners of the Bonds immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes. There is no assurance that the current law will not be changed in the future in a manner which would permit investments other than those described above to be made with amounts deposited to defease the Bonds. Legal Investment and Eligibility to Secure Public Funds in Texas The following is quoted from Section of the Texas Water Code, and is applicable to the District: "(a) All bonds, notes, and other obligations issued by a district shall be legal and authorized investments for all banks, trust companies, building and loan associations, savings and loan associations, insurance companies of all kinds and types, fiduciaries, and trustees, and for all interest and sinking funds and other public funds of the state, and all agencies, subdivisions, and instrumentalities of the state, including all counties, cities, towns, villages, school districts, and all other kinds and types of districts, public agencies, and bodies politic." "(b) A district s bonds, notes, and other obligations are eligible and lawful security for all deposits of public funds of the state, and all agencies, subdivisions, and instrumentalities of the state, including all counties, cities, towns, villages, school districts, and all other kinds and types of districts, public agencies, and bodies politic, to the extent of the market value of the bonds, notes, and other obligations when accompanied by any un-matured interest coupons attached to them." The Public Funds Collateral Act (Chapter 2257, Texas Government Code) also provides that bonds of the District (including the Bonds) are eligible as collateral for public funds. Registered Owners' Remedies and Bankruptcy Pursuant to Texas law, the Bond Resolution provides that, in the event the District defaults in the payment of the principal of or interest on any of the Bonds when due, fails to make payments required by the Bond Resolution into the Debt Service Fund, or defaults in the observance or performance of any of the other covenants, conditions or obligations set forth in the Bond Resolution, any Registered Owner shall be entitled to seek a writ of mandamus from a court of competent jurisdiction compelling and requiring the District to make such payments or to observe and perform such covenants, obligations or conditions. Such right is in addition to other rights the Registered Owners may be provided by the laws of the State of Texas. In the event of default in the payment of principal of or interest on the Bonds, the Registered Owners may seek a writ of mandamus requiring the District to levy adequate taxes to make such payments. Except for the remedy of mandamus, the Bond Resolution does not specifically provide for remedies to a Registered Owner in the event of a District default, nor does it provide for the appointment of a trustee to protect and enforce the interests of the Registered Owners. There is no acceleration of maturity of the Bonds in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. Although the Registered Owners could obtain a judgment against the District, such a judgment could not be enforced by direct levy and execution against the District's property. Further, the Registered Owners cannot themselves foreclose on the property of the District or sell property within the District in order to pay the principal of or interest on the Bonds. The enforceability of the rights and remedies of the Registered Owners may be further limited by laws relating to bankruptcy, reorganization or other similar laws of general application affecting the rights of creditors of political subdivisions such as the District. For example, a Chapter 9 bankruptcy proceeding by the District could delay or eliminate payment of principal or interest to the Registered Owners. 17

19 PLAN OF FINANCING Use and Distribution of Bond Proceeds A portion of the proceeds of the Bonds will be applied to currently refund $2,225,000 in principal amount of the District s $3,325,000 Unlimited Tax Bonds, Series 2005 (the "Series 2005 Bonds"), $2,530,000 of the District s $5,400,000 Unlimited Tax Bonds, Series 2005A (the Series 2005A Bonds ), $4,385,000 of the District s $2,395,000 Unlimited Tax Bonds, Series 2005B (the Series 2005B Bonds ), $2,030,000 of the District s $6,000,000 Unlimited Tax Bonds, Series 2006 (the Series 2006 Bonds ), and to pay administrative and issuance costs related to the issuance of the Bonds. The Series 2005 Bonds, the Series 2005A Bonds, the Series 2005B Bonds, and the Series 2006 Bonds are referred to herein as the "Refunded Bonds." The Refunded Bonds The principal amounts and maturity dates of the Refunded Bonds are set forth as follows: Series 2005 Bonds Series 2005A Bonds Series 2005B Bonds Maturity Principal Maturity Principal Date Amount Date Amount Principal Amount Maturity Date $ 120, $ 195, $ 155, , , , , , , , , , , , , , , ,000(b) , , ,110,000(c) , , , ,000(a) , , , , $2,225,000 $2,530,000 $2,395,000 Redemption Date: 3/11/2014 Redemption Date: 3/11/2014 Redemption Date: 3/11/2014 Series 2006 Bonds Principal Amount Maturity Date $ 205, , , , , , , , $2,030,000 Redemption Date: 3/11/2014 Aggregate Principal Amount of Refunded Bonds: $9,180,

20 (a) Term Bond with mandatory redemption amounts as follows: Amount Redemption Date Amount Redeemed $305,000 3/1/2024 $305, ,000 3/1/ ,000 $625,000 $625,000 (b) Term Bond with mandatory redemption amounts as follows: Amount Redemption Date Amount Redeemed $125,000 3/1/2021 $125, ,000 3/1/ , ,000 3/1/ , ,000 3/1/ , ,000 3/1/ ,000 $580,000 $580,000 (c) Term Bond with mandatory redemption amounts as follows: Amount Redemption Date Amount Redeemed $ 95,000 3/1/2026 $ 95, ,000 3/1/ , ,000 3/1/ ,000 $1,110,000 $1,110,000 Remaining Outstanding Bonds In addition to the Refunded Bonds, the District has issued $3,300,000 Unlimited Tax Bonds, Series 2001 (the "Series 2001 Bonds"); $2,500,000 Unlimited Tax Bonds, Series 2003 (the Series 2003 Bonds ); $5,450,000 Unlimited Tax Bonds, Series 2003A (the Series 2003A Bonds ); $3,225,000 Unlimited Tax Bonds, Series 2004 (the Series 2004 Bonds ); $3,325,000 Unlimited Tax Bonds, Series 2005 (the "Series 2005 Bonds"); $5,400,000 Unlimited Tax Bonds, Series 2005A (the "Series 2005A Bonds"); $6,675,000 Unlimited Tax Bonds, Series 2005B (the "Series 2005B Bonds"); $6,000,000 Unlimited Tax Bonds, Series 2006 (the "Series 2006 Bonds"); $6,800,000 Unlimited Tax Bonds, Series 2007 (the "Series 2007 Bonds"); $6,565,000 Unlimited Tax Bonds, Series 2008 (the "Series 2008 Bonds"); $5,105,000 Unlimited Tax Refunding Bonds, Series 2010 (the "Series 2010 Refunding Bonds"), $5,205,000 Unlimited Tax Refunding Bonds, Series 2010A (the Series 2010A Refunding Bonds ) and $2,795,000 Unlimited Tax Refunding Bonds, Series 2012 (the Series 2012 Refunding Bonds ). The Bonds are the fourth issue of a total authorization of $29,280,000 of bonds authorized by District voters for refunding of outstanding bonds, of which $28,184, will remain unissued after the delivery of the Bonds. Excluding the Refunded Bonds, $33,400,000 principal amount of the bonds originally issued shall remain outstanding (the "Remaining Outstanding Bonds"). 19

21 Following the issuance of the Bonds the following bonds will remain outstanding (the Remaining Outstanding Bonds ) and the respective redemption dates: Original Principal Less: Remaining Principal Currently Refunded Outstanding Amount Outstanding Bonds Bonds Series 2001 Bonds $ 3,300,000 $ 0 $ 0 $ 0 Series 2003 Bonds 2,500, Series 2003A Bonds 5,450, Series 2004 Bonds 3,225, , ,000 Series 2005 Bonds 3,325,000 2,955,000 2,225, ,000 Series 2005A Bonds 5,400,000 4,790,000 2,530,000 2,260,000 Series 2005B Bonds 6,675,000 5,270,000 2,395,000 2,875,000 Series 2006 Bonds 6,000,000 5,085,000 2,030,000 3,055,000 Series 2007 Bonds 6,800,000 6,015, ,015,000 Series 2008 Bonds 6,565,000 6,235, ,235,000 Series 2010 Refunding Bonds 5,105,000 4,300, ,300,000 Series 2010A Refunding Bonds 5,205,000 5,045, ,045,000 Series 2012 Refunding Bonds 2,795,000 2,775, ,775,000 $62,345,000 $42,580,000 $9,180,000 $33,400,000 Sources and Uses of Funds The proceeds from the sale of the Bonds will be applied as follows: SOURCES OF FUNDS: Principal Amount of Bonds... $9,050, Original Issue Premium on the Bonds , Debt Service Fund Transfer... 60, Accrued Interest on Bonds... 3, Total Sources of Funds... $9,527, USES OF FUNDS: Deposit for Payment of Refunded Bonds... $9,191, Deposit of Accrued Interest to Debt Service Fund... 3, Bond Insurance... 34, Issuance Expenses and Underwriters Discount , Total Uses of Funds... $9,527,

22 THE DISTRICT Authority The District is a municipal utility district created by an order of the TNRCC dated March 10, 1997, after a hearing upon a petition for creation submitted by the Developer. The creation of the District was confirmed at an election held within the District on January 17, The rights, powers, privileges, authority and functions of the District are established by the general laws of the State of Texas pertaining to municipal utility districts, including particularly Chapters 49 and 54, Texas Water Code pursuant to Article XVI, Section 59 of the Texas Constitution. The District is empowered, among other things, to purchase, construct, operate, and maintain all works, improvements, facilities, and plants necessary for the supply of water; the collection, transportation, and treatment of wastewater; and the control and diversion of storm water. In addition, at an election held May 4, 2002, the voters of the District authorized the District to provide fire protection services through a contract with Missouri City. Under certain limited circumstances the District also is authorized to construct, develop and maintain park and recreational facilities. Description The District encompasses approximately 1,229 acres of land. The District is located entirely within Fort Bend County, Texas, approximately 22 miles southwest of the central business district of the City of Houston, Texas; and approximately 7 miles east of the intersection of U.S. Highway 59 (the "Southwest Freeway") and Texas State Highway 6; approximately 1 mile west of the intersection of the Fort Bend Parkway and State Highway 6; and approximately 8 miles west of the intersection of Texas State Highway 288 and Texas State Highway 6, and wholly within the boundaries of the Fort Bend Independent School District and Sienna Plantation Levee Improvement District of Fort Bend County, Texas ("SPLID"). SPLID provides major outfall drainage and flood protection for all of the land within the District. See "DEVELOPMENT WITHIN THE DISTRICT." The District is located within the extraterritorial jurisdiction of the City of Missouri City, except for a small portion that is within the corporate limits of the City. See "THE BONDS - Annexation by the City of Missouri City," and "SIENNA PLANTATION - Development Agreement." The District is bisected by two parallel railroad lines, one operated by Burlington Northern Santa Fe Railroad and the other by Union Pacific Railroad for use by Reliant Energy. See "DEVELOPMENT WITHIN THE DISTRICT." Community Facilities Community facilities available in the general geographic area of the District are set forth below: Churches: Churches of all major denominations are located in the cities of Missouri City, Sugar Land, and the master-planned community of First Colony, all within ten miles of the District. Employment Centers: Employment centers near the District are located in the cities of Missouri City, Houston and Sugar Land. Employers in the Missouri City area include Onedco Chemical Company, Vector Cable Company (Division of Schlumberger, Ltd.), Baylor Company (Division of Sedco, Inc.), Johnson (Division of Schlumberger, Ltd.), Sperry Sun Weld Surveying Company (Division of Sun Oil Company), Synercom Technology, Integrated Power Systems, Mazda, Automatic Valve Specialties, Texas Precision Metalcrafts, Fluor Daniel Corp., Chem Lawn, Ondeo Quanex Tubular, Sigma Chapman Engineering, Fort Bend Independent School District and Allied Glass. The District is approximately 15 miles from the Texas Medical Center in Houston. Fire Protection: Fire protection to residents of the District is provided by the City of Missouri City Fire Department. Transportation Facilities: Access to Sienna Plantation is provided by Sienna Parkway, a four lane boulevard which extends south from Texas State Highway 6 through the middle of the project a distance of approximately three (3) miles where it terminates. A planned extension of this road will connect with FM 521 on the southeastern boundary of Sienna Plantation. Sienna Plantation is located approximately 2 miles southwest of the Fort Bend Parkway Toll Road, eight (8) miles east of the intersection of Texas State Highway 6 and U.S. Highway 59 and approximately eleven (11) miles west of the intersection of Texas State Highway 6 and Texas State Highway 288, which are major access roads to the Houston central business district. A second access point is provided by Sienna Ranch Road, a four land boulevard which 21

23 currently extends south from Texas State Highway 6 to Sienna Springs Blvd. A planned extension of this road will connect Texas State Highway 6 to Sienna Parkway. Medical Facilities: In addition to numerous clinics, doctors offices, and regional hospitals in the area, the District is a 30 minute drive to the Texas Medical Center. Memorial Hermann Sugar Land Hospital is located approximately 15 miles from the District. This hospital has 77 rooms within 220,000 square feet. In addition, Memorial Hermann Southwest Hospital, a 550-bed facility with an adjacent professional building, is located eleven miles northeast of the District on the Southwest Freeway. Methodist Sugar Land Hospital is located approximately 10 miles from the District. Currently, the hospital houses 180 beds with capacity to grow to 236 beds. Christus Health Care has purchased a 35-acre site in Sienna Plantation for a future medical facility. No representation can be made as to when or if such facility will be constructed. Other Utilities: Electric service is provided by CenterPoint Energy and natural gas by Si Energy, L.P., and Entex, Inc. Telephone service is provided by Entouch Systems, Inc. and Comcast. Cable is provided by Entouch Systems, Inc. and Comcast. Recreational Facilities: LG Sienna LLC operates an 18-hole daily-fee golf course and clubhouse in Sienna Plantation. In addition, Sienna Plantation includes four neighborhood pools and cabanas; Brushy Lake Fitness Center, a workout facility with weights and cardiovascular equipment; and three water theme parks, including Club Sienna, a recreational complex located on 12 acres that includes a 7,500 square foot clubhouse, aquatics center, one Olympic-size swimming pool, 2 water theme parks, children's playground, 8 lighted tennis courts, soccer fields, baseball fields and an open air amphitheatre capable of seating 3,000 people. All of such facilities are open to all residents of land developed by the Developer within Sienna Plantation. Schools: Land in the District is located within the Fort Bend Independent School District ( FBISD ), which provides bus service to all students within its boundaries residing more than two miles from the school. Students residing in the District would attend the following schools: School Scanlan Oaks Elementary Sienna Crossing Elementary School Jan Schiff Elementary School Billy Baines Middle School Lake Olympia Middle School Ridge Point High School Hightower High School Elkins High School Distance from District Located Within Sienna Plantation Located Within Sienna Plantation Located Within Sienna Plantation Located Within Sienna Plantation 4 Miles Located Within Sienna Plantation 4.8 Miles 4.5 Miles Shopping and Banking Facilities: Neighborhood shopping facilities are available to residents within Sienna Plantation, in the City of Missouri City, First Colony, and in southwest Houston. The nearest major shopping center is First Colony Mall, located adjacent to the Southwest Freeway, some seven miles west of the District. First Colony Mall contains approximately one-million square feet of space. Sienna Plantation contains a 125,541 square foot HEB Plus grocery store, a Sonic, a Whataburger, a Wells Fargo Bank, an IShine Car Wash, a CVS Pharmacy, a Dunkin Donuts and five retail centers (aggregating approximately 100,000 square feet). The Market at Bees Creek is located in Sienna Plantation, at the intersection of Bees Passage and Sienna Parkway. It includes Sienna Market & Deli, Exxon, Sienna Cleaners, Pepperoni s, Sweet Tan, Gordon Insurance, Eden Nail Salon & Spa, Snowflake Donuts, Sienna Salon & Spa, Sienna Floors Expo, Bee s Creek Grill and Sienna Plantation Animal Clinic. 22

24 Management of the District The District is governed by the Board of Directors (the "Board"), consisting of five directors, who have control over and management supervision of all affairs of the District. All of the Directors reside in the District. The directors serve four-year staggered terms. Elections are held in even numbered years in May. The current members and officers of the Board, along with their occupations are listed below: Name Title Occupation Term Expires May Robert N. Coltharp President Engineer 2014 Don Trull Vice President Maintenance Manager 2016 Kathy Bender Secretary Engineer 2014 Ray Sick Assistant Vice President Product Control 2016 Mark Parsons Assistant Secretary Manager 2016 Investment Policy The District has adopted an Investment Policy (the "Policy") as required by the Public Funds Investment Act, Chapter 2256, Texas Government Code (the "Act"). The District's goal is to preserve principal and maintain liquidity in a diversified portfolio while securing a competitive yield on its portfolio. Funds of the District are to be invested only in accordance with the Policy. The Policy states that the funds of the District may be invested in short term obligations of the U.S. or its agencies or instrumentalities, in certificates of deposits insured by the Federal Deposit Insurance Corporation ("FDIC") and secured by collateral authorized by the Act, and in TexPool and Texas Class, which are public funds investment pools rated in the highest rating category by a nationally recognized rating service. The District does not currently own, nor does it anticipate, the inclusion of long term securities or derivative products in the portfolio. Consultants Although the District does not have a general manager or any other full-time employees, it has contracted for utility system operating, bookkeeping, tax assessing and collecting, auditing, engineering, and legal services as follows: Tax Assessor/Collector The District's Tax Assessor/Collector is Ms. Esther Flores of Tax Tech, Inc. (the "Tax Assessor/Collector"). Tax Tech employees serve as tax assessor/collector for approximately 60 other taxing jurisdictions. The Tax Assessor/Collector applies the District's tax levy to tax rolls prepared by the Fort Bend Central Appraisal District and bills and collects such levy. Bookkeeper The District's bookkeeper is McLennan & Associates, LP. Such firm acts as bookkeeper for more than 100 utility districts. Utility System Operator The District s current operator is Si Environmental, LLC. Such firm acts as operator for approximately 40 utility districts, including the Master District. Auditor As required by the Texas Water Code, the District retains an independent auditor to audit the District's financial statements annually, which annual audit is filed with the TCEQ. A copy of the District's audit prepared by McGrath & Co., PLLC for the fiscal year ended September 30, 2012, is included as "APPENDIX B" to this Official Statement. The District has authorized McGrath & Co., PLLC to audit its financial records for the fiscal year ended February 28,

25 Engineer The consulting engineer for the District in connection with the previous design and construction of the facilities with the District is LJA Engineering, Inc. (the "Engineer"). Bond Counsel The District has engaged Allen Boone Humphries Robinson LLP, Houston, Texas as general counsel to the District and as bond counsel ("Bond Counsel") in connection with the issuance of the Bonds. The fees to be paid Bond Counsel in connection with the issuance of the Bonds are contingent upon the sale and delivery of the Bonds. See "LEGAL MATTERS." Financial Advisor Financial Advisor RBC Capital Markets, LLC ( the Financial Advisor ) is employed as Financial Advisor to the District in connection with the issuance of the Bonds. The Financial Advisor s fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. The Financial Advisor is not obligated to undertake and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information in this Official Statement. Special Consultant Related to Issuance of the Bonds Verification Agent At the time of delivery of the Bonds, Grant Thornton LLP, Certified Public Accountants, will verify to the District, Bond Counsel, and the Underwriters certain matters related to the issuance of the bonds and the refunding of the Refunded Bonds. See "VERIFICATION OF MATHEMATICAL CALCULATIONS." DEVELOPMENT WITHIN THE DISTRICT Development of the majority of the property within the District has been completed by Sienna/Johnson Development L.P., ("Developer" or "SJD") whose general partner is Sienna/Johnson Development GP, L.L.C. Approximately 956 acres (2,383 lots) within the District have been developed as various single-family residential subdivisions. As of December 1, 2013, 2,381 homes were complete and occupied; no homes complete and unoccupied; 2 homes were under construction, and no lots were vacant and developed. The remaining land within the District is comprised of approximately 32 acres that are undeveloped but developable, approximately 118 acres comprising a portion of the golf course and clubhouse, approximately 124 acres that are undevelopable. The remaining developable acres in the District are owned by Toll Brothers. The District is bisected by two parallel railroad lines, one operated by Burlington North Santa Fe Railroad and the other line by Union Pacific Railroad for Houston Lighting & Power Company. DEVELOPER AND PRINCIPAL LANDOWNER The land in the District was developed by Sienna/Johnson Development L.P., a Texas limited partnership (the Developer or "SJD"), whose general partner is Sienna/Johnson Development GP, L.L.C. and whose limited partners are Sienna Plantation Partners, L.P., a Delaware limited partnership and GBIC, Ltd., a Texas limited partnership. Toll Brothers owns approximately 32 acres of undeveloped but developable acres, development of which is being managed by Johnson SS Management, LLC. Description of the Project SIENNA PLANTATION The District is part of a 10,500-acre community, which is governed by the terms and conditions of the Sienna Plantation Joint Development Agreement between the major landowners and developers in the community and the City of Missouri City. The Sienna Plantation Joint Development Agreement has nine subsequent amendments (collectively, the Development Agreement ). In the Development Agreement, the City and the landowners stipulate the City s regulatory authority over the development of the community, establish certain restrictions and commitments, set forth a formula for determining the timing of annexation of land by the City, and identify and establish a master plan for the development of the 10,500-acre community. This master planned area consists of four distinct developments: Sienna Plantation by Johnson Development, approximately 6,700 acres; Sienna Point, an approximately 1,053 acre rural estate subdivision; the Toll Brothers Development, approximately 3,800 acres; and 324 acres owned by Sienna 325 LP, an affiliate of the Developer, and Taylor Morrison of Texas, Inc.. 24

26 The approximately 6,700 acres of Sienna Plantation that is being developed by Johnson Development began in This area includes 4 internal municipal utility districts and a management district: the District, Sienna Plantation Municipal Utility District No. 2, Sienna Plantation Municipal Utility District No. 3, Sienna Plantation Municipal Utility District No. 12, and Sienna Plantation Management District. This area also includes The Woods at Sienna, an approximately acre rural estate subdivision (by design the rural estate subdivisions are not served by any municipal utility districts). Sienna Plantation Municipal Utility District No. 1 (the Master District ) is the municipal utility district created to provide the water supply and wastewater treatment facilities, as well as the regional water distribution, regional wastewater collection trunk lines, and regional stormwater collection trunk lines necessary to serve the 4 internal municipal utility districts, the management district, and provides water supply to The Woods at Sienna. The District is served by the Master District and is a part of the Sienna Plantation Development by Johnson Development. In December, 2013, Toll Brothers purchased approximately 3,800 acres of land in the Southern region of Sienna Plantation, including approximately 32 acres in the District. Toll Brothers is a publicly traded company on the New York Stock Exchange and a national homebuilder, which is actively building homes in 19 states. For more information, visit The Toll Brothers Development encompasses four internal municipal utility districts Sienna Plantation Municipal Utility District Nos According to Toll Brothers representatives, timing of delivery of the initial lots has not been determined. Approximately 1,053 acres within SPLID was developed as Sienna Point, a rural estate lot project containing approximately 272 lots ranging in size from 1.5 acres to 12 acres. All of the lots have been completed. Water and sanitary sewer service to homes in such project are provided by individual water wells and septic systems. None of such property is located within the boundaries of any of the Sienna Plantation Districts. Flood protection is provided by the Sienna Plantation Levee Improvement District of Fort Bend County ("SPLID") and all of the property located within Sienna Point is subject to the taxing jurisdiction of the SPLID. Virtually all of the 272 lots in Sienna Point have been sold to individuals. As of December 1, 2013, 172 homes have been completed and occupied and 1 home is under construction. SPLID encompasses approximately 9,832 acres, including the Sienna Plantation Development, which includes the District, and the Toll Brothers Development. According to the developers, the ultimate land use within Sienna Plantation is currently projected as follows: approximately 15,725 single-family residential lots, approximately 2,720 multi-family units, 1,150 retirement residential units, approximately 300 rural estate residential units, approximately 1,105 acres used for the development of commercial mixed-use projects, and the remaining acres will consist of the 18-hole Sienna Plantation Golf Course, clubhouse, water theme facility, swimming and tennis facilities, drainage and levee easements, street rights-of way, utility easements, open space, lakes, parks and greenbelts. Development within Sienna Plantation to date has occurred primarily within the District, Sienna Plantation Municipal Utility District No. 2, Sienna Plantation Municipal Utility District No. 3, Sienna Plantation Municipal Utility District No. 12, Sienna Plantation Management District, Sienna Point (a 272 rural lot subdivision), and The Woods at Sienna (a 104 rural lot subdivision). Current development within Sienna Plantation includes (i) an aggregate of 7,029 single-family residential lots and an additional 135 single-family residential lots under development; (ii) 372 completed rural estate lots; (iii) a 2,400 square foot information center; (iv) an 18-hole golf course; (v) two water theme parks and amphi-theater; and (vi) three (3) elementary schools, one (1) middle school and one (1) high school. As of December 1, 2013, home development within Sienna Plantation consisted of 6,246 completed single-family homes, 152 single-family homes under construction, an additional 272 rural estate homes (100 homes in The Woods of Sienna and 172 homes in Sienna Point), 1 rural estate home under construction, 727 vacant developed lots, and 135 lots under development. The District's tax is levied only on the property located within the District. Therefore, the investment security and quality of the Bonds is dependent upon the successful development of property located within the District, and the payment and collection of taxes levied thereon. Neither the faith and credit nor the taxing power of any of the Sienna Plantation municipal utility districts, other than the District, is pledged to the payment of any obligation of the District, including the Bonds. See "INVESTMENT CONSIDERATIONS." Development within the District is discussed in the section of this Official Statement entitled "DEVELOPMENT WITHIN THE DISTRICT." Development Agreement SJD and the other Sienna Plantation developers in Sienna Plantation have entered into the Sienna Plantation Joint Development Agreement with the City of Missouri City ("City") dated February 19, 1996, as amended by nine amendments (the "Development Agreement"), which stipulate the City's regulatory authority over the development 25

27 of Sienna Plantation, establishes certain restrictions and commitments related to the development of Sienna Plantation, sets forth detailed design and construction standards, stipulates a formula for determining the timing of annexations of land within Sienna Plantation by the City, and identifies and establishes a master plan for the development of Sienna Plantation. The development of all land within Sienna Plantation is governed by the provisions of the Development Agreement. The Development Agreement limits the number of residential units within Sienna Plantation to 21,000 units, of which no more than 2,720 units may be multi-family units. In addition, there can be no more than 1,100 acres of commercial development within Sienna Plantation, and no more than an additional 300 acres of Rural Estate Lots (as defined in the Development Agreement) after the development of Sienna Point. In the Development Agreement, the City agrees not to annex the property in the District before such time as (i) at least 95% of the developable acreage within the District has been developed with water, wastewater treatment and drainage facilities; and (ii) the Developer has been reimbursed to the maximum extent permitted by the rules of the TCEQ or the City assumes any obligation for such reimbursement. The City also agrees to provide regional wastewater treatment, fire and police protection to the residents in the District subject to the payment for such services by the District. See "THE SYSTEM - Wastewater Treatment, and - Fire Protection." DISTRICT DEBT Debt Service Requirement Schedule The following schedule sets forth the current total debt service requirements of the District, less the debt service on the Refunded Bonds, plus the principal and interest requirements on the Bonds. Year Current Less: The Plus: The Bonds Total Refunded Bonds Principal Interest Debt Requirement Debt Service Requirements 2014 $ 3,379,229 $ 203,333 $ 142,688 $ 3,318, ,385, ,666 $ 60, ,775 3,323, ,382,689 1,067, , ,875 3,321, ,385,967 1,064, , ,175 3,324, ,380,955 1,054, , ,325 3,319, ,381,790 1,057, , ,225 3,321, ,386,516 1,050, , ,950 3,324, ,385,457 1,050, , ,325 3,324, ,384,747 1,048, , ,888 3,323, ,384,646 1,045, , ,450 3,320, ,384, , , ,250 3,320, ,384, , ,000 80,450 3,320, ,384, , ,000 63,325 3,324, ,403, , ,000 45,794 3,343, ,415, , ,000 16,894 3,351, ,452,680 3,452, ,484,073 3,484, ,440,625 3,440, ,431,956 3,431,956 Total $64,620,693 $12,430,896 $9,050,000 $2,452,388 $63,692,185 Average Annual Requirements - ( )... $3,352,220 Maximum Annual Requirement - (2030)... $3,484,073 26

28 Bonded Indebtedness 2013 Assessed Valuation... $651,189,256 (a) (100% of market value as of January 1, 2013) See "TAX DATA" and "TAXING PROCEDURES." Direct Debt Remaining Outstanding Bonds... $ 33,400,000 (b) The Bonds... 9,050,000 Total... $ 42,450,000 Estimated Overlapping Debt... $ 54,307,682 (c) Total Direct and Estimated Overlapping Debt... $ 96,757,682 Debt Service Fund (as of January 22, 2014)... $ 1,758,605 General Fund (as of January 22, 2014)... $ 3,459, Tax Rate per $100 of Assessed Valuation Debt Service... $0.54 Maintenance Contract Tax Total... $0.71 Direct Debt Ratios: As a percentage of the 2013 Assessed Valuation % Direct and Estimated Overlapping Debt Ratios: As a percentage of the 2013 Assessed Valuation % [Remainder of Page Intentionally Left Blank] (a) As certified by the Fort Bend Central Appraisal District (the "Appraisal District"). (b) Excluding the Refunded Bonds. (c) See "DISTRICT DEBT - Estimated Direct and Overlapping Debt Statement." 27

29 Estimated Direct and Overlapping Debt Statement Other governmental entities whose boundaries overlap the District have outstanding bonds payable from ad valorem taxes. The following statement of direct and estimated overlapping ad valorem tax debt was developed from information contained in "Texas Municipal Reports," published by the Municipal Advisory Council of Texas, or other available information. Except for the amount relating to the District, the District has not independently verified the accuracy or completeness of such information, and no person is entitled to rely upon such information as being accurate or complete. Furthermore, certain of the entities listed below may have issued additional bonds since the dates stated in this table, and such entities may have programs requiring the issuance of substantial amounts of additional bonds, the amount of which cannot presently be determined. Political subdivisions overlapping the District are authorized by Texas law to levy and collect ad valorem taxes for operation, maintenance and/or general revenue purposes in addition to taxes for payment of their debt, and some are presently levying and collecting such taxes. Outstanding Debt Estimated as of Overlapping Taxing Jurisdiction January 31, 2013 Percent Amount Fort Bend County $468,360, % $ 6,902,090 Fort Bend Independent School 878,904, ,083,589 District Sienna Plantation Levee 78,785, ,322,003 Improvement District Total Estimated Overlapping Debt $ 54,307,682 The District 42,450,000(a) Total Direct & Estimated Overlapping Debt $ 96,757,682 (a) Includes the Bonds, and excludes the Refunded Bonds. Debt Ratios % of 2013 Assessed Valuation Direct Debt 6.52% Direct and Estimated Overlapping 14.86% Debt TAXING PROCEDURES Authority to Levy Taxes The Board is authorized to levy an annual ad valorem tax, without legal limitation as to rate or amount, on all taxable property within the District in sufficient amount to pay the principal of and interest on the Remaining Outstanding Bonds, the Bonds and any additional bonds payable from taxes which the District may hereafter issue (see "INVESTMENT CONSIDERATIONS - Future Debt"), and to pay the expenses of assessing and collecting such taxes. The District agrees in the Bond Resolution to levy such a tax from year to year as described more fully above under "THE BONDS - Source of Payment." Under Texas law, the Board may also levy and collect annual ad valorem taxes for the operation and maintenance of the District and the System and for the payment of certain contractual obligations. See "TAX DATA - Maintenance Tax." Property Tax Code and County-wide Appraisal District The Texas Property Tax Code (the "Property Tax Code") specifies the taxing procedures of all political subdivisions of the State of Texas, including the District. Provisions of the Property Tax Code are complex and are not fully summarized herein. The Property Tax Code requires, among other matters, county-wide appraisal and equalization of taxable property values and establishes in each county of the State of Texas an appraisal district with the responsibility for recording and appraising property for all taxing units within a county and an appraisal review 28

30 board with responsibility for reviewing and equalizing the values established by the Appraisal District. The Fort Bend Central Appraisal District (the "Appraisal District") has the responsibility of appraising property for all taxing units within Fort Bend County, including the District. Such appraisal values will be subject to review and change by the Fort Bend County Appraisal Review Board (the "Appraisal Review Board"). The appraisal roll, as approved by the Appraisal Review Board, will be used by the District in establishing its tax rolls and tax rate. Property Subject to Taxation by the District Except for certain exemptions provided by Texas law, all real property, tangible personal property held or used for the production of income, mobile homes and certain categories of intangible personal property with a tax situs in the District are subject to taxation by the District. Principal categories of exempt property include, but are not limited to: property owned by the State of Texas or its political subdivisions, if the property is used for public purposes; property exempt from ad valorem taxation by federal law; certain household goods, family supplies and personal effects; certain goods, wares, and merchandise in transit; certain farm products owned by the producer; certain property of charitable organizations, youth development associations, religious organizations, and qualified schools; designated historical sites; travel trailers; and most individually-owned automobiles. In addition, the District may by its own action exempt residential homesteads of persons 65 years of age or older and certain disabled persons, to the extent deemed advisable by the Board of Directors of the District. The District may be required to offer such exemptions if a majority of voters approve the same at an election. The District would be required to call an election upon petition by twenty percent (20%) of the number of qualified voters who voted in the preceding election. The District is authorized by statute to disregard exemptions for the disabled and elderly if granting the exemption would impair the District's obligation to pay tax-supported debt incurred prior to adoption of the exemption by the District. Furthermore, the District must grant exemptions to disabled veterans or certain surviving dependents of disabled veterans, if requested, but only to the maximum extent of between $5,000 and $12,000 depending upon the disability rating of the veteran claiming the exemption. A veteran who receives a disability rating of 100% is entitled to an exemption for the full value of the veteran s residence homestead. Furthermore, qualifying surviving spouses of persons 65 years of age and older are entitled to receive a resident homestead exemption equal to the exemption received by the deceased spouse. For the 2013 tax year, the District granted a $20,000 over 65 and disabled exemption. Tax Abatement Fort Bend County (the County ) may designate all or part of the area within the District as a reinvestment zone. Thereafter, the County and the District, at the option and discretion of each entity, may enter into tax abatement agreements with owners of property within the zone. Prior to entering into a tax abatement agreement, each entity must adopt guidelines and criteria for establishing tax abatement which each entity will follow in granting tax abatement to owners of property. The tax abatement agreements may exempt from ad valorem taxation by each of the applicable taxing jurisdictions, including the District, for a period of up to ten (10) years, all or any part of any increase in the assessed valuation of property covered by the agreement over its assessed valuation in the year in which the agreement is executed on the condition that the property owner make specified improvements or repairs to the property in conformity with the terms of the tax abatement. As of September 1, 1999, each taxing jurisdiction has discretion to determine terms for its tax abatement agreements without regard to the terms approved by the other taxing jurisdictions. To date, no portion of the land within the District has been designated as a reinvestment zone. Valuation of Property for Taxation Generally, property in the District must be appraised by the Appraisal District at market value as of January 1 of each year. Once an appraisal roll is prepared and finally approved by the Appraisal Review Board, it is used by the District in establishing its tax rolls and tax rate. Assessments under the Property Tax Code are to be based on one hundred percent (100%) of market value, as such is defined in the Property Tax Code. Nevertheless, certain land may be appraised at less than market value, as such is defined in the Property Tax Code. The Texas Constitution limits increases in the appraised value of residence homesteads to 10 percent annually regardless of the market value of the property. The Property Tax Code permits land designated for agricultural use, open space or timberland to be appraised at its value based on the land's capacity to produce agricultural or timber products rather than at its fair market value. The Property Tax Code permits under certain circumstances that residential real property inventory held by a person in the trade or business be valued at the price all of such property would bring if sold as a unit to a purchaser who would continue the business. Provisions of the Property Tax Code are complex and are not fully summarized here. Landowners wishing to avail themselves of the agricultural use, open space or timberland designation or residential real property inventory designation must apply for the designation and the appraiser is required by the Property Tax 29

31 Code to act on each claimant's right to the designation individually. A claimant may waive the special valuation as to taxation by one political subdivision while claiming it for another. If a claimant receives the agricultural use designation and later loses it by changing the use of the property or selling it to an unqualified owner, the District can collect taxes based on the new use, including taxes for the previous three years for agricultural use and taxes for the previous five years for open space land and timberland. The Property Tax Code requires the Appraisal District to implement a plan for periodic reappraisal of property to update appraisal values. The plan must provide for appraisal of all property in the Appraisal District at least once every three years. It is not known what frequency of reappraisals will be utilized by the Appraisal District or whether reappraisals will be conducted on a zone or county-wide basis. The District, however, at its expense, has the right to obtain from the Appraisal District a current estimate of appraised values within the District or an estimate of any new property or improvements within the District. While such current estimate of appraised values may serve to indicate the rate and extent of growth of taxable values within the District, it cannot be used for establishing a tax rate within the District until such time as the Appraisal District chooses to formally include such values on its appraisal roll. District and Taxpayer Remedies Under certain circumstances, taxpayers and taxing units, including the District, may appeal orders of the Appraisal Review Board by filing a timely petition for review in district court. In such event, the property value in question may be determined by the court, or by a jury, if requested by any party. Additionally, taxing units may bring suit against the Appraisal District to compel compliance with the Property Tax Code. The Property Tax Code sets forth notice and hearing procedures for certain tax rate increases by the District and provides for taxpayer referenda which could result in the repeal of certain tax increases. The Property Tax Code also establishes a procedure for notice to property owners of reappraisals reflecting increased property values, appraisals that are higher than renditions and appraisals of property not previously on an appraisal roll. Levy and Collection of Taxes The District is responsible for the levy and collection of its taxes, unless it elects to transfer such functions to another governmental entity. By September 1 of each year, or as soon thereafter as practicable, the rate of taxation is set by the Board of Directors of the District based upon a) the valuation of property within the District as of the preceding January 1, and b) the amount required to be raised for debt service, maintenance purposes and authorized contractual obligations. Taxes are due October 1, or when billed, whichever comes later, and become delinquent if not paid before February 1 of the year following the year in which imposed. A delinquent tax incurs a penalty of six percent (6%) of the amount of the tax for the first calendar month it is delinquent, plus one percent (1%) for each additional month or portion of a month the tax remains unpaid prior to July 1 of the year in which it becomes delinquent. If the tax is not paid by July 1 of the year in which it becomes delinquent, the tax incurs a total penalty of twelve percent (12%) regardless of the number of months the tax has been delinquent and incurs an additional penalty for collection costs of an amount established by the District and a delinquent tax attorney. The delinquent tax accrues interest at a rate of one percent (1%) for each month or portion of a month it remains unpaid. The Property Tax Code makes provisions for the split payment of taxes, discounts for early payment and the postponement of the delinquency date of taxes under certain circumstances which, at the option of the District, may be rejected. District's Rights in the Event of Tax Delinquencies Taxes levied by the District are a personal obligation of the owner of the property as of January 1 of the year in which the tax is imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties and interest ultimately imposed for the year on the property. The lien exists in favor of the State and each taxing unit, including the District, having the power to tax the property. The District's tax lien is on a parity with the tax liens of other such taxing units. A tax lien on real property takes priority over the claims of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien; however, whether a lien of the United States is on a parity with or takes priority over a tax lien of the District is determined by federal law. Personal property, under certain circumstances, is subject to seizure and sale for the payment of delinquent taxes, penalty and interest. At any time after taxes on property become delinquent, the District may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the District must join other taxing units that have claims for delinquent taxes against all or part of the same property. Collection of delinquent taxes may be adversely affected by the amount of taxes owed to other taxing 30

32 units, by the effects of market conditions on the foreclosure sale price, by taxpayer redemption rights or by bankruptcy proceedings which restrict the collection of taxpayer debts. A taxpayer may redeem property within two years for residential and agricultural property and six months for commercial property and all other types of property after the purchaser's deed at the foreclosure sale is filed in the county records. TAX DATA General All taxable property within the District is subject to the assessment, levy and collection by the District of a continuing, direct annual ad valorem tax without legal limitation as to rate or amount, sufficient to pay principal of and interest on the Bonds (see "TAXING PROCEDURES"). The Board of Directors of the District has in its Bond Resolution covenanted to assess and levy for each year that all or any part of the Bonds remain outstanding and unpaid a tax ample and sufficient to produce funds to pay the principal of and interest on the Bonds (see "THE BONDS" and "INVESTMENT CONSIDERATIONS"). The District levied a debt service tax of $0.54 per $100 of assessed valuation, a maintenance tax of $0.08 per $100 of assessed valuation and a contract tax of $0.09 per $100 of assessed valuation for the 2013 tax year. Tax Rate Limitation Debt Service: Unlimited (no legal limit as to rate or amount). Maintenance: $1.10 per $100 Assessed Valuation. Contract: Unlimited (no legal limit as to rate or amount). Maintenance Tax The Board of Directors of the District has the statutory authority to levy and collect an annual ad valorem tax for maintenance of the District's improvements if such maintenance tax is authorized by vote of the District's electors. On May 1, 1999, the Board was authorized by a vote of the District's electors to levy such maintenance tax in an amount not to exceed $1.10 per $100 of assessed valuation. Such tax, when levied, is in addition to taxes which the District is authorized to levy for paying principal of and interest on the Bonds and any parity bonds which may be issued in the future. The District has levied a maintenance since the 1999 tax year. See "- Tax Rate Distribution" below. Contract Tax The District's obligation to pay its share of the costs of operating the Master District facilities is secured by the unlimited taxing power of the District. See "THE SYSTEM - Master District Contract," and - Wastewater Treatment." Exemptions For 2013, the District adopted an exemption from ad valorem taxation of $20,000 of the approved value of residence homestead of individuals who are disabled or are sixty-five (65) years of age or older. To date, the District has not adopted a general residential homestead exemption. See "TAXING PROCEDURES." Additional Penalties The District has contracted with a delinquent tax attorney to collect certain delinquent taxes. In connection with that contract, the District established an additional penalty of twenty percent (20%) of the tax to defray the costs of collection. This 20% penalty applies to taxes that either; (1) become delinquent on or after February 1 of a year, but not later than May 1 of that year, and that remain delinquent on July 1 of the year in which they become delinquent or (2) become delinquent on or after June 1, pursuant to the Texas Tax Code. 31

33 Tax Rate Calculations The tax rate calculations set forth below are presented to indicate the tax rates per $100 of assessed valuation which would be required to meet certain debt service requirements on Remaining Outstanding Bonds and the Bonds if no growth in the District's tax base occurs beyond the 2013 Assessed Valuation ($651,189,256). The calculations assume collection of 95% of taxes levied, and the sale of no additional bonds by the District except Remaining Outstanding Bonds and the Bonds. Average Annual Debt Service Requirements ( )... $3,352,220 Tax Rate of $0.55 on the 2013 Assessed Valuation produces... $3,402,464 Maximum Annual Debt Service Requirement (2030)... $3,484,073 Tax Rate of $0.57 on the 2013 Assessed Valuation produces... $3,526,190 Estimated Overlapping Taxes Property within the District is subject to taxation by several taxing authorities in addition to the District. Under Texas law, if ad valorem taxes levied by a taxing authority become delinquent, a lien is created upon the property which has been taxed. A tax lien on property in favor of the District is on a parity with tax liens of other taxing jurisdictions. In addition to ad valorem taxes required to make debt service payments on bonded debt of the District and of such other jurisdictions (see "DISTRICT DEBT - Estimated Direct and Overlapping Debt Statement"), certain taxing jurisdictions are authorized by Texas law to assess, levy and collect ad valorem taxes for operation, maintenance, administrative and/or general revenue purposes. Set forth below is an estimation of all taxes per $100 of assessed valuation levied by such jurisdictions. No recognition is given to local assessments for civic association dues, emergency medical service contributions, fire department contributions or any other charges made by entities other than political subdivisions. The following chart includes the 2013 taxes per $100 of assessed valuation levied by all such taxing jurisdictions. Taxing Jurisdiction 2013 Tax Rate The District $ Fort Bend County (a) Fort Bend ISD Sienna Plantation LID Total Tax Rate $ (a) Includes $ for Fort Bend County Drainage District. No prediction can be made of the tax rates that will be levied in future years by the respective taxing jurisdictions. Assessed Valuation Summary The following represents the type of property comprising the tax rolls: Type of Property 2013 Assessed Valuation 2012 Assessed Valuation 2011 Assessed Valuation 2010 Assessed Valuation 2009 Assessed Valuation Land $158,903,270 $157,426,570 $155,644,030 $152,924,200 $149,014,310 Improvements 503,613, ,567, ,583, ,823, ,808,420 Personal Property 12,330,951 12,106,690 11,630,908 10,973,470 11,855,190 Exemptions (23,658,195) (24,145,394) (13,070,520) (12,338,684) (10,880,991) Total $651,189,256 $618,954,896 $630,788,408 $614,382,906 $610,796,929 32

34 Historical Tax Collections Tax Year Assessed Valuation Tax Rate/ $100 (a) Adjusted Levy % of Collections Current Year Fiscal Year Ending Collections as of 12/31/ $ 45,158,400 $0.90 $ 406, % % ,601, , ,009, ,314, ,511, ,046, ,632, ,714, ,464, ,460, ,465, ,128, ,796, ,458, ,365, ,423, ,844, ,542, ,865, ,455, ,214, ,623,625 (b) (a) See "Tax Rate Distribution." (b) In process of collection. Tax Rate Distribution Debt Service $0.54 $0.56 $0.15 $0.45 $0.56 Maintenance Contract (a) $0.71 $0.72 $0.72 $0.72 $0.73 (a) See "THE SYSTEM Master District Contract," and - Wastewater Treatment." Principal Taxpayers The following are the principal taxpayers in the District as shown on the District's certified appraisal rolls for the 2013 tax year. Assessed Valuation Taxpayer Type of Property 2013 Tax Roll Sienna Technologies Personal Property $ 2,643,020 Centerpoint Energy Electric Personal Property 2,109,150 L.G.I. Sienna LLC Land & Improvements 1,598,590 AH4R I TX LLC Land & Improvements 1,283,220 Homeowner Land & Improvements 1,237,620 Federal National Mortgage Assoc. Land & Improvements 1,225,560 Homeowner Land & Improvements 1,032,710 UST-PRU Sienna LP Land & Improvements 985,600 Homeowner Land & Improvements 945,320 Teddys House LLC Land & Improvements 916,330 Total $13,977,120 % of Respective Tax Roll 2.15% 33

35 THE SYSTEM General The internal water distribution, wastewater collection and stormwater facilities are being provided by the District. Water supply, wastewater treatment and major trunk water lines, wastewater collection and storm sewer facilities are being provided by Sienna Plantation Municipal Utility District No. 1 ("Master District" or "SPMUD 1") through contractual agreement (the "Master District Contract"). All of such water, wastewater and stormwater facilities are referred to herein as the "System." The Master District was created by the Commission and, pursuant to the Master District Contract, has the responsibility to provide such facilities necessary to serve 9,832 acres (the Service Area ) including the District, Sienna Plantation Municipal Utility District Nos. 2, 4-7, 10, 12, and the Sienna Plantation Management District (each a "Participant District"). Flood protection and certain stormwater drainage facilities are being provided by SPLID. Historical Operations of the System Fiscal Year Ended September 30, REVENUES: Water Service $ 953,810 $ 843,560 $ 730,145 $ 734,328 $ 619,613 Sewer Service 1,119,064 1,147,546 1,216,259 1,132,610 1,059,512 Property Taxes 3,592,205 1,657,388 1,034, , ,645 Penalties and Interest 26,935 65,557 51,283 60,632 55,733 Tap Connection & Inspection Fees 25,781 39,038 92, , ,145 RSTP , Surface Water Fees 515, ,032 18, , ,029 Miscellaneous 8,715 16,657 18,995 13,594 17,798 Investment Earnings 9,445 5,277 3,711 15,666 40,445 TOTAL REVENUES $6,251,572 $4,455,055 $3,521,836 $3,207,251 $2,705,920 EXPENDITURES: Current Service Operations Purchased Services $1,094,496 $1,195,469 $1,199,004 $1,277,812 $1,081,431 Professional Fees 131,181 92,729 92, , ,710 Contracted Services 546, , , , ,441 Repairs and Maintenance 159, , , , ,113 Recreational Facilities Surface Water 659, , , , ,657 Administrative 88,277 87,212 84,831 82,241 75,693 Other 52,161 65,671 95,664 44,059 45,965 Capital Outlay , , Contractual Obligations 560, , , Master District Replacement Fund 97, ,091 29, Transfer to Master District-Generator 273, , TOTAL EXPENDITURES $3,662,245 $3,786,468 $3,497,903 $3,099,968 $2,196,010 Excess (Deficiency) of Revenues Over Expenditures $2,589,327 $668,587 $ 23,933 $ 107,283 $ 509,910 Regulation Construction and operation of the System as it now exists or as it may be expanded from time to time is subject to the regulatory jurisdiction of several Federal, State and local authorities. The TCEQ exercises continuing supervisory authority over the District. Discharge of treated sewage is subject to the regulatory authority of the TCEQ and the U.S. Environmental Protection Agency. Construction of drainage facilities is subject to the regulatory authority of Fort Bend County, and, in some instances, SPLID, the TCEQ and the U.S. Army Corps of Engineers. Missouri City and Fort Bend County also exercises regulatory jurisdiction over the District's System. Master District Contract The District and the Master District have entered into the Contract for Financing, Operation and Maintenance of Regional Water, Sanitary Sewer and Storm Sewer Facilities (the "Master District Contract"). Each of the Participant Districts has already or will enter into an identical Master District Contract with the Master District. Under the 34

36 Master District Contract, the Master District is obligated to provide the water supply, storm sewer collection, wastewater treatment facilities and regional water distribution and regional wastewater collection trunk lines necessary to serve the District and the other Participant Districts. To provide funds necessary to acquire the needed facilities the District and the other Participant Districts are required under the contract to pay connection charges to the Master District in amounts sufficient to enable the Master District to provide such services. The connection charge, which is subject to recalculation periodically, is determined by dividing the current estimated costs of all the aforementioned regional facilities to be constructed minus the payments which have previously been received for connections purchased, by the anticipated number of connections remaining to be purchased, within the Service Area. Between recalculation dates, the ENR Construction Cost Index may be applied as an escalator to the connection charge. In lieu of payment of connection charges, the District, with the approval of the Master District, may construct facilities for the Master District which after completion are conveyed to the Master District as a credit against connection charges. Currently, the connection charge to the District is $8,874/per equivalent single-family connection ( ESFC ). The Master District bills the Participating Districts (including the District) on a monthly basis for amounts sufficient to pay the Master District's costs and expenses of operating and maintaining its regional facilities. The Master District is presently charging the District and the other Participating Districts $32.00 per ESFC per month for both water and sewer services and $0.25 per 1,000 gallons of usage to fund renewal and replacement of Master District facilities. The obligation of the District to make monthly payments to the Master District is secured by the taxing power of the District, and the obligation of each of the other Participant Districts to make monthly payments is secured by the taxing powers of each such district. As of December 1, 2013, the District had 7,097 active non-irrigation ESFC. Water Supply The District s source of water supply is surface water from the City of Missouri City through the Master Utility District, Sienna Plantation Municipal Utility District No. 1 (Master District). Pursuant to the Groundwater Reduction Plan, of which the Master District is a participant, the City of Missouri City has become the permitted entity for water supply. The Master District owns and operates Sienna Plantation Water Plant Nos. 1 & 2 ( Plant Nos. 1 & 2 ), which currently consist of five (5) wells totaling 5,900 gallons per minute ( gpm ), a 379,000 gallon ground storage tank, a 805,000 gallon ground storage tank, a 512,000 gallon ground storage tank, a 608,000 gallon ground storage tank, one 30,000 gallon hydro-pneumatic tank, two 35,000 gallon hydro-pneumatic tanks, three 20,000 gallon hydropneumatic tanks, two 10,000 gallon hydro-pneumatic tanks, 17,807 gpm of booster pump capacity, an auxiliary diesel-powered generator at each site, and related appurtenances. Currently, such plants are rated to serve 8,903 ESFCs. As of December 1, 2013, the Master District was serving approximately 7,097 active non-irrigation esfc. The Master District entered into an interlocal agreement with the City of Missouri City on January 7, 2008, under this agreement, the Master District is entitled to all of the capacities and facilities necessary to support 1,000 ESFC from the City of Missouri City Mustang Bayou Plant. The interconnect between the City of Missouri City and the Master District system is complete. The Master District s existing water supply system with the interconnect is capable of serving 9,903 ESFC. Wastewater Treatment The Master District operates two wastewater treatment plants ( WWTP ) to serve Sienna Plantation. Currently, Sienna Plantation is split into two interim wastewater regions, the North and Central Regions. The Master District currently owns and operates a 1,200,000 gallons per day ( gpd ) WWTP located in the Central region (WWTP #2) (sufficient to serve 4,800 ESFC), and leases and operates a 902,000 gpd WWTP located in the North region (WWTP #3) (sufficient to serve 3,608 ESFC), assuming each ESFC utilizes 250 gpd of wastewater treatment capacity. As of December 1, 2013, the Master District was serving 4,548 active ESFC in Sienna South and 2,459 ESFC in Sienna North. Portions of the District are located in both service areas. Flood Protection and Drainage Facilities Approximately 9,832 of Sienna Plantation's approximate 10,500 acres are located within the SPLID. The system consists of two independent levee and outfall drainage networks, as well as flood plain reclamation (fill) sites for land within SPLID not protected by a levee. 35

37 Sienna South Levee and Drainage System SPLID s initial Plan of Reclamation covered the approximately 6,465 acres of land known as Sienna South. The levee and related outfall structures and channels were completed in According to SPLID's Engineer, as a result of the construction of the facilities financed by SPLID, all land located within Sienna South was removed from the 100-year flood plain of the Brazos River. Such area located within SPLID is now designated by the applicable Flood Hazard Boundary Map of the Federal Emergency Management Agency ("FEMA") as lying within a designated "Zone X," which designates an area protected from the 100-year flood event by a levee. As a result of SPLID's construction of the levee, internal detention and drainage systems, SPLID's Engineer has defined an "internal" 100-year flood plain. This flood plain is designated as below the lowest floor slab elevation for residential construction, as required by applicable federal regulations. According to SPLID s Engineer, the existing levee and drainage outfall system is sufficient to provide flood plain reclamation, flood protection and outfall drainage necessary to serve the existing development within Sienna South, including the lots under development. Sienna North Levee and Drainage System SPLID s Amended Plan of Reclamation covers approximately 2,516 acres of land within the North Levee System. The phase of the levee and related outfall structures and channels were completed in According to SPLID's Engineer, as a result of the construction of the facilities financed by SPLID, the land located within the North Levee System was removed from the 100-year flood plain of the Brazos River. Such area located within SPLID is now designated by the applicable Flood Hazard Boundary Map of the Federal Emergency Management Agency ("FEMA") as lying within a designated "Zone X," which designates an area protected from the 100-year flood event by a levee. As a result of SPLID's construction of the levee, internal detention and drainage systems, SPLID's Engineer has defined an "internal" 100-year flood plain. This flood plain is designated as below the lowest floor slab elevation for residential construction, as required by applicable federal regulations. According to SPLID s Engineer, the existing levee and drainage outfall system is sufficient to serve the existing development within Sienna North, including the lots under development. The Sienna North Levee and Drainage System has experienced unanticipated infiltration during high water events. One source of the infiltration was the gates at the outfall structures, which according to SPLID s Engineer, has been corrected. SPLID s Engineer suspects that a second source of infiltration is groundwater. The District has constructed two 100,000 gallon per minute ("GPM") pump stations to serve the Sienna North Levee System. According to SPLID s Engineer, these pumping facilities will be sufficient to handle the calculated infiltration. Federal Emergency Management Agency Study FEMA commissioned a study to re-evaluate the "base flood elevation" (commonly referred to as the 100-year flood plain elevation) in Fort Bend County. The study has been concluded and SPLID s levees meet the National Flood Insurance Program minimum requirements and have been certified as such. The preliminary revised Flood Insurance Rate Map panels reflect that SPLID s levees protect the areas of SPLID within the levees from the 1% annual chance flood (100-year event). 100-Year Flood Plain As stated above, according to the SPLID s Engineer, the entirety of Sienna South has been removed from the FEMA 100-year flood plain designation as a consequence of the construction of levee and drainage improvements financed by SPLID. Upon completion of the levee serving Sienna North and the issuance of a Letter of Map Revision by FEMA, approximately 2,400 acres in Sienna North were removed from the 100-year flood plain. The "100-year flood plain" is a hypothetical engineering and meteorological concept that defines a geographical area that would supposedly be flooded by a rain storm in intensity statistically having a one percent chance of occurring in any one year. Generally speaking, homes must be built above the 100-year flood plain in order to meet local regulatory requirements and to be eligible for federal flood insurance subsidies. An engineering or regulatory determination that an area is above the 100-year flood plain is no assurance that homes built in such area will not be flooded. If substantial or frequent flooding of homes were to occur in the District, the marketing of homes and the future growth of property values in the District could be adversely affected. 36

38 Construction of Future Internal Drainage Facilities The System currently provides flood protection from overflows of the Brazos River to the majority of the land within SPLID. The System also provides detention and outfall drainage facilities to maintain internal water surface elevations in the developed areas below the 100-year flood plain. As additional development continues, SPLID or the developers within SPLID must construct pump stations, detention facilities and outfall drainage facilities to maintain these water surface elevations. SPLID will be required to issue additional debt to finance the internal drainage improvements within SPLID. If SPLID or the developers within SPLID cannot or do not construct these additional facilities the amount of future development within SPLID will be limited. Fire Protection Pursuant to a contract between the District and the City, fire protection to residents of the District is provided by the Missouri City Fire Department from an 8,400 square foot fire station located on Sienna Parkway approximately 0.5 miles from the boundary of the District. The District pays the City a monthly fee for such services. A second 7,700 square foot fire station is currently under construction and is located along Sienna Parkway approximately 1.8 miles from the boundary of the District. Construction is anticipated to be complete in March INVESTMENT CONSIDERATIONS General The Bonds are obligations of the District and are not obligations of the State of Texas; Fort Bend County, Texas; the City of Missouri City, Texas; or any political subdivision other than the District. The Bonds will be secured by a continuing, direct, annual ad valorem tax, levied without legal limitation as to rate or amount, levied against all taxable property located within the District. The ultimate security for payment of the principal of and interest on the Bonds depends upon the ability of the District to collect from the property owners within the District taxes levied against all taxable property located within the District, or, in the event taxes are not collected and foreclosure proceedings are instituted by the District, upon the value of the taxable property with respect to taxes levied by the District and by other taxing authorities. The District makes no representations that over the life of the Bonds the property within the District will maintain a value sufficient to justify continued payment of taxes by the property owners. The potential increase in taxable valuation of District property is directly related to the economics of the residential housing industry, not only due to general economic conditions, but also due to the particular factors discussed below. Factors Affecting Taxable Values and Tax Payments Economic Factors: The rate of development within the District is directly related to the vitality of the residential housing industry in the Houston metropolitan area, including particularly the vitality of the market for higher priced homes. New residential housing construction can be significantly affected by factors such as interest rates, construction costs, and consumer demand. Decreased levels of home construction activity would restrict the growth of property values in the District. Although as of December 1, 2013, the District contained 2,383 homes (including 2 homes currently under construction), the District cannot predict the pace or magnitude of future construction in the District. See "DEVELOPMENT WITHIN THE DISTRICT." Location and Access: The District is located in an outlying area of the Houston metropolitan area, approximately 22 miles from the central business district of the City of Houston and approximately six (6) miles from two major highways (U.S. Hwy 59 and Texas State Hwy 288). The Developer and homebuilders active within the District compete for the sale of developed lots and homes with numerous residential development projects located closer to major employment centers and closer to major arterial roads. In addition, many of the residential developments with which the District competes have lower overlapping taxes. As a result, particularly during times of increased competition, the Developer and homebuilders may find themselves at a competitive disadvantage to the developers and homebuilders in other residential projects located closer to major urban centers or with lower overlapping taxes. See "THE DISTRICT." 37

39 Maximum Impact on District Tax Rates: Assuming no further development or home construction, the value of the land and improvements currently within the District will be the major determinant of the ability or willingness of property owners to pay their taxes. The 2013 Assessed Valuation of property located within the District (see "TAX DATA") is $651,189,256. After issuance of the Bonds, the maximum annual debt service requirement on the Remaining Outstanding Bonds and the Bonds will be $3,484,073 (2030) and the average annual debt service requirements will be $3,352,220 ( , inclusive). Assuming no increase to nor decrease from the 2013 Assessed Valuation, tax rates of $0.57 and $0.55 per $100 of assessed valuation at a 95% tax collection rate would be necessary to pay the maximum annual debt service requirement and the average annual debt service requirements, respectively. The District can make no representation that the taxable property values in the District will increase in the future or will maintain a value sufficient to support the proposed District tax rate or to justify continued payment of taxes by property owners. Increases in the District's tax rate to rates substantially higher than the levels discussed above may have an adverse impact upon future development of the District, the sale and construction of homes within the District, and the ability of the District to collect, and the willingness of owners of property located within the District to pay ad valorem taxes levied by the District. Flooding Due to Levee Breach or Overtopping: The SPLID s levee and drainage system have been designed and constructed to all current standards. See "THE SYSTEM." However, the system does not protect against all flooding scenarios. There are three instances in which flooding could occur in the SPLID: 1) an overtopping of the levee, or 2) a failure (or breach) of the levee system, or 3) localized rainfall in excess of the 100-year event. An overtopping of the levee could occur if the Brazos River or its tributaries reach flood stages higher than the 100- year event. The "100-year event" means the river elevation has a statistical 1% chance of occurring in any given year. Current FEMA regulations require an earthen levee to be constructed a minimum of three feet above the level of a 100-year event. The 100-year event elevation for the Brazos River adjacent to the SPLID s levee, ranges from feet above mean sea level to feet above mean sea level. According to the SPLID s engineer, overtopping of the Sienna Levee system may occur from storm events with a recurrence interval of less than 0.2% based on the effective FEMA models for the Brazos River in Fort Bend County. In addition to the risk of overtopping, a portion of the SPLID would experience flooding if the levee failed (or breached) while the Brazos River (or its tributaries) were at a flood state of less than the 100-year event. In order to mitigate the risk, the SPLID performs weekly inspections of the levee to observe any visible deterioration of the levee that is in need of repair. District Tax Levy and Overlapping District Taxes and Functions The entirety of the District is located within Sienna Plantation Levee Improvement District of Fort Bend County, Texas ("SPLID"), a levee improvement district that covers approximately 9,832 acres of land. SPLID has constructed certain improvements to remove land within SPLID from the flood plain and to accommodate storm water drainage within SPLID, including the District. As of the date of this Official Statement, SPLID has $78,785,000 principal amount of bonds outstanding. The principal of and interest on SPLID bonds are payable from the proceeds of a continuing, direct annual ad valorem tax, without legal limit as to rate or amount, levied against all taxable property located within SPLID, including the District but not the area in the City of Missouri City Tax Increment Reinvestment Zone No. 3. SPLID levied a debt service tax of $0.365 per $100 of Assessed Valuation for 2013, plus a maintenance tax of $0.125 per $100 of Assessed Valuation, for a total 2013 tax of $0.49 per $100 of Assessed Valuation. Since SPLID's debt is payable from an unlimited tax, the full and timely payment of such tax by the owners of property located within SPLID will directly affect SPLID's ability to meet its debt obligations. Furthermore, the absence of continued development and growth of taxable values in SPLID or other factors could result in increases in SPLID's tax rate. The combined tax rates of the District and SPLID (which total $1.20 per $100 valuation) are higher than the tax levy of many municipal utility districts in the Houston metropolitan area. In the event that SPLID's debt service tax rate of $0.365 per $100 of Assessed Valuation, plus its maintenance tax of $0.125 per $100 of assessed valuation, prove to be insufficient to enable SPLID to meet debt service requirements on its indebtedness and/or its maintenance and operating requirements, SPLID would be required to increase its tax rate to a level sufficient to meet such requirements. SPLID's 2013 Assessed Valuation is $2,026,061,897 and the Estimate of Value, as of August 1, 2013, is $2,129,390,974. In April, 2008, the City designated 596 acres as "Missouri City Tax Increment Reinvestment Zone No. 3", of which approximately 500 acres lie within the boundaries of SPLID. SPLID has agreed to contribute 100% of its Tax Increment Reinvestment Zone ( TIRZ ) Revenues to the City for the life of the TIRZ or thirty years, whichever is 38

40 less. SPLID s participation in the TIRZ has the effect of reducing the tax revenues that are available to SPLID to finance SPLID facilities during the life of the TIRZ. For the tax year 2012, SPLID s tax increment equaled $55,728,640 and will generate approximately $259,417 in revenues based upon SPLID s 2012 tax rate of $0.49 per $100 of assessed valuation. After the TIRZ is dissolved or after 30 years, SPLID will collect and retain the tax revenue on all of the land previously located in the TIRZ. As described in this Official Statement under the caption "SIENNA PLANTATION," the development and construction activity completed within Sienna Plantation includes the development of approximately 7,164 singlefamily residential lots, the development of 272 rural estate lots in Sienna Point, the development of 104 rural estate lots in The Woods, and the construction of more than 6,246 homes, 152 homes under construction, plus certain amenities and commercial improvements. Such development and construction activity, together with development and construction activity anticipated to occur within Sienna Plantation in the future, are expected to contribute to increases in Sienna Plantation s assessed valuation. The District cannot guarantee whether any of the land development projects which are planned for or are underway in the District will be successful or whether the assessed valuation of the land located within the District will increase sufficiently to justify continued payment of the District tax by property owners. Increases in the District's tax rate so that the combined tax rate between the District and Sienna Plantation Levee Improvement District rises above $1.20 per $100 valuation would have an adverse impact upon future development within the District and the ability of the District to collect, and the willingness of owners of property located within the District to pay, ad valorem taxes levied by the District. As discussed in this Official Statement under the caption "THE SYSTEM - Master District Contract," on May 24, 2007, the District executed a Contract for Financing Operation and Maintenance of Regional Water, Sanitary Sewer and Storm Sewer Facilities (the "Master District Contract") with Sienna Plantation Municipal Utility District No. 1 (the "Master District"), which requires the Master District to supply water to the District and provide wastewater treatment service to the District. The Master District Contract defines the means by which the District's pro rata share and the pro rata share of all other Sienna Plantation MUDs, which are parties to the Master District Contract (collectively defined in the Master District Contract as the "Participant Districts"), of the cost of such service will be determined. The Master District Contract obligates the District to pay such pro rata share in the form of monthly charges per connection and one-time connection charges for each equivalent single-family connection from the proceeds of ad valorem taxes levied for such purpose or from any other lawful source of District income. The tax rate that may be required to service debt on any bonds issued by the District or SPLID is subject to numerous uncertainties such as the growth of taxable values within such district, the impact of any payments to the TIRZ by SPLID, the amount of the bonds issued, regulatory approvals, construction costs and market interest rates. There can be no assurances that composite tax rates imposed by overlapping jurisdictions on property situated in the Sienna Plantation MUDs, including the District, will be competitive with the tax rates of competing projects. To the extent that such composite tax rates are not competitive with competing developments, the growth of property tax values in the District and the investment quality or security of the Bonds could be adversely affected. Tax Collection Limitations The District's ability to make debt service payments may be adversely affected by its inability to collect ad valorem taxes. Under Texas law, the levy of ad valorem taxes by the District constitutes a lien in favor of the District on a parity with the liens of all other state and local taxing authorities on the property against which taxes are levied, and such lien may be enforced by foreclosure. The District's ability to collect ad valorem taxes through such foreclosure may be impaired by (a) cumbersome, time-consuming and expensive collection procedures, (b) a bankruptcy court's stay of tax collection procedures against a taxpayer, (c) market conditions limiting the proceeds from a foreclosure sale of taxable property or (d) the taxpayer's right to redeem the property within six (6) months for commercial property and two (2) years for residential and all other property after the purchaser's deed issued at the foreclosure sale is filed in the county records. While the District has a lien on taxable property within the District for taxes levied against such property, such lien can be foreclosed only in a judicial proceeding. Attorney's fees and other costs of collecting any such taxpayer's delinquencies could substantially reduce the net proceeds to the District from a tax foreclosure sale. Finally, any bankruptcy court with jurisdiction over bankruptcy proceedings initiated by or against a taxpayer within the District pursuant to the Federal Bankruptcy Code could stay any attempt by the District to collect delinquent ad valorem taxes against such taxpayer. In addition to the automatic stay against collection of delinquent taxes afforded a taxpayer during the pendency of a bankruptcy, a bankruptcy could affect payment of taxes in two (2) other ways: first, a debtor's confirmation plan may allow a debtor to make installment payments on delinquent taxes for up to six (6) years; and, second, a debtor may challenge, and a bankruptcy court may reduce, the amount of any taxes assessed against the debtor, including taxes that have already been paid. 39

41 Registered Owners' Remedies and Bankruptcy In the event of default in the payment of principal of or interest on the Bonds, the Registered Owners have a right to seek a writ of mandamus requiring the District to levy adequate taxes each year to make such payments. Except for mandamus, the Bond Resolution does not specifically provide for remedies to protect and enforce the interests of the Registered Owners. There is no provision for acceleration of maturity of the Bonds in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. Although the Registered Owners could obtain a judgment against the District, such a judgment could not be enforced by a direct levy and execution against the District's property. Further, the Registered Owners cannot themselves foreclose on property within the District or sell property within the District in order to pay the principal of and interest on the Bonds. Since there is no trust indenture or trustee, the Registered Owners would have to initiate and finance the legal process to enforce their remedies. The enforceability of the rights and remedies of the Registered Owners further may be limited by laws relating to bankruptcy, reorganization or other similar laws of general application affecting the rights of creditors of political subdivisions such as the District. In this regard, should the District file a petition for protection from creditors under federal bankruptcy laws, the remedy of mandamus or the right of the District to seek judicial foreclosure of its tax lien would be automatically stayed and could not be pursued unless authorized by a federal bankruptcy judge. See "THE BONDS - Bankruptcy Limitation to Registered Owners' Rights." Marketability The District has no understanding (other than the initial reoffering yields) with the Underwriters regarding the reoffering yields or prices of the Bonds and has no control over the trading of the Bonds in the secondary market. Moreover, there is no assurance that a secondary market will be made for the Bonds. If there is a secondary market, the difference between the bid and asked price of the Bonds may be greater than the bid and asked spread of other bonds which are more generally bought, sold or traded in the secondary market. See "SALE AND DISTRIBUTION OF THE BONDS." Bond Insurance Risk Factors The Issuer has applied for a bond insurance policy to guarantee the scheduled payment of principal and interest on the Bonds. The Issuer has yet to determine whether an insurance policy will be purchased with the Bonds. If an insurance policy is purchased, the following are risk factors relating to bond insurance. In the event of default of the payment of principal or interest with respect to the Bonds when all or some becomes due, any owner of the Bonds shall have a claim under the applicable Bond Insurance Policy (the Policy ) for such payments. However, in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments are to be made in such amounts and at such times as such payments would have been due had there not been any such acceleration. The Policy does not insure against redemption premium, if any. The payment of principal and interest in connection with mandatory or optional prepayment of the Bonds by the issuer which is recovered by the issuer from the bond owner as a voidable preference under applicable bankruptcy law is covered by the insurance policy, however, such payments will be made by the Insurer at such time and in such amounts as would have been due absence such prepayment by the Issuer unless the Bond Insurer chooses to pay such amounts at an earlier date. Under most circumstances, default of payment of principal and interest does not obligate acceleration of the obligations of the Bond Insurer without appropriate consent. The Bond Insurer may direct and must consent to any remedies and the Bond Insurer s consent may be required in connection with amendments to any applicable bond documents. In the event the Bond Insurer is unable to make payment of principal and interest as such payments become due under the Policy, the Bonds are payable solely from the moneys received pursuant to the applicable bond documents. In the event the Bond Insurer becomes obligated to make payments with respect to the Bonds, no assurance is given that such event will not adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds. The long-term ratings on the Bonds are dependent in part on the financial strength of the Bond Insurer and its claim paying ability. The Bond Insurer s financial strength and claims paying ability are predicated upon a number of factors which could change over time. No assurance is given that the long-term ratings of the Bond Insurer and of the ratings on the Bonds insured by the Bond Insurer will not be subject to downgrade and such event could adversely affect the market price of the Bonds or the marketability (liquidity) for the Bonds. See RATINGS. 40

42 The obligations of the Bond Insurer are contractual obligations and in an event of default by the Bond Insurer, the remedies available may be limited by applicable bankruptcy law or state law related to insolvency of insurance companies. Neither the Issuer or Underwriters have made independent investigation into the claims paying ability of the Bond Insurer and no assurance or representation regarding the financial strength or projected financial strength of the Bond Insurer is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the Issuer to pay principal and interest on the Bonds and the claims paying ability of the Bond Insurer, particularly over the life of the investment. See Bond Insurance herein for further information provided by the Bond Insurer and the Policy, which includes further instructions for obtaining current financial information concerning the Bond Insurer. Future Debt The District has no authorized bonds for waterworks, sanitary sewer and drainage facilities, or for fire protection equipment and facilities. The District will have $28,184, authorized but unissued bonds for refunding outstanding bonds, after the issuance of the Bonds (See "THE BONDS - Issuance of Additional Debt"), and such additional bonds as may hereafter be approved by both the Board and voters of the District. The District also has the right to issue certain other additional bonds, special project bonds, and other obligations described in the Bond Resolution. If additional bonds are issued in the future and property values have not increased proportionately, such issuance may increase gross debt/property valuation ratios and thereby adversely affect the investment quality or security of the Bonds. Competitive Nature of Houston Area Residential Housing Market The housing industry in the Houston area is very competitive, and the District can give no assurance that the building programs which are planned by the Developer will be continued or completed. The respective competitive positions of the Developer and any of the homebuilders are affected by most of the factors discussed in this section, and such competitive positions are directly related to tax revenues received by the District and the growth and maintenance of taxable values in the District. Continuing Compliance with Certain Covenants The Bond Resolution contains covenants by the District intended to preserve the exclusion from gross income of interest on the Bonds. Failure by the District to comply with such covenants on a continuous basis prior to maturity of the Bonds could result in interest on the Bonds becoming taxable retroactively to the date of original issuance. See "TAX MATTERS." Approval of the Bonds The Attorney General of Texas must approve the legality of the Bonds prior to their delivery. The Attorney General of Texas does not pass upon or guarantee the security of the Bonds as an investment, nor does he pass upon the adequacy or accuracy of the information contained in this Official Statement. Environmental Regulations Wastewater treatment, water supply, storm sewer facilities and construction activities within the District are subject to complex environmental laws and regulations at the federal, state and local levels that may require or prohibit certain activities that affect the environment, such as: Requiring permits for construction and operation of water wells, wastewater treatment and other facilities; Restricting the manner in which wastes are treated and released into the air, water and soils; Restricting or regulating the use of wetlands or other properties; Requiring remedial action to prevent or mitigate pollution. Sanctions against a municipal utility district for failure to comply with environmental laws and regulations may include a variety of civil and criminal enforcement measures, including assessment of monetary penalties, imposition of remedial requirements and issuance of injunctions to ensure future compliance. Environmental laws and compliance with environmental laws and regulations can increase the cost of planning, designing, constructing and operating water production and wastewater treatment facilities. Environmental laws can also inhibit growth and development within the District. Further, changes in regulations occur frequently, and any changes that result in more stringent and costly requirements could materially impact the District. 41

43 Air Quality Issues. Air quality control measures required by the United States Environmental Protection Agency (the EPA ) and the Commission may impact new industrial, commercial and residential development in Houston and adjacent areas. Under the Clean Air Act ( CAA ) Amendments of 1990, the eight-county Houston-Galveston area ( HGB area ) Harris, Galveston, Brazoria, Chambers, Fort Bend, Waller, Montgomery and Liberty counties was designated by the EPA in 2008 as a severe ozone nonattainment area, with an attainment date of June 15, Such areas are required to demonstrate progress in reducing ozone concentrations each year until the EPA s 8- hour ozone standards are met. To provide for reductions in ozone concentrations, the EPA and the Commission have imposed increasingly stringent limits on sources of air emissions and require any new source of significant air emissions to provide for a net reduction of air emissions. If the HGB area fails to demonstrate progress in reducing ozone concentrations or fails to meet EPA s standards, EPA may impose a moratorium on the awarding of federal highway construction grants and other federal grants for certain public works construction projects, as well as severe emissions offset requirements on new major sources of air emissions for which construction has not already commenced. In order to comply with the EPA s standards for the HGB area, the Commission has established a state implementation plan ( SIP ) setting emission control requirements, some of which regulate the inspection and use of automobiles. These types of measures could impact how people travel, what distances people are willing to travel, where people choose to live and work, and what jobs are available in the HGB area. It is possible that additional controls will be necessary to allow the HGB area to reach attainment by June 15, These additional controls could have a negative impact on the HBG area s economic growth and development. Water Supply & Discharge Issues. Water supply and discharge regulations that Utility Districts, including the District, may be required to comply with involve: (1) public water supply systems, (2) wastewater discharges from treatment facilities, (3) storm water discharges, and (4) wetlands dredge and fill activities. Each of these is addressed below: Pursuant to the Safe Drinking Water Act ( SDWA ), potable (drinking) water provided by a district to more than twenty-five (25) people or fifteen (15) service connections will be subject to extensive federal and state regulation as a public water supply system, which include, among other requirements, frequent sampling and analyses. Additional or more stringent regulations or requirements pertaining to these and other drinking water contaminants in the future could require installation of more costly treatment facilities. Operations of Utility Districts are also potentially subject to numerous stormwater discharge permitting requirements under the Clean Water Act and EPA and TCEQ regulations. The TCEQ reissued the Texas Pollutant Discharge Elimination System Construction General Permit (TXR150000) on February 19, The permit became effective on March 5, 2013, and is a general permit authorizing the discharge of stormwater runoff associated with small and large construction sites and certain non-stormwater discharges into surface water in the state. The TCEQ renewed the General Permit for Phase II (Small) Municipal Separate Storm Sewer Systems (the MS4 Permit ) on December 11, The permit authorizes the discharge of stormwater to surface water in the state from small municipal separate storm sewer systems ( MS4s ). The renewed MS4 Permit impacts a much greater number of MS4s that were not previously subject to the MS4 Permit and contains more stringent requirements than the standards contained in the previous MS4 Permit. MS4s who are subject to the renewed MS4 Permit must apply for authorization under the renewed MS4 Permit by June 11, It is anticipated that the District could incur substantial costs to develop and implement the required plans as well as to install or implement best management practices to minimize or eliminate unauthorized pollutants that may otherwise be found in stormwater runoff in order to comply with the renewed MS4 Permit. Operations of Utility Districts, including the District, are also potentially subject to requirements and restrictions under the Clean Water Act regarding the use and alteration of wetland areas that are within the waters of the United States. The District must obtain a permit from the U.S. Army Corps of Engineers if operations of the District require that wetlands be filled, dredged, or otherwise altered. Legal Opinions LEGAL MATTERS The District will furnish to the Underwriters a transcript of certain certified proceedings incident to the issuance and authorization of the Bonds, including a certified copy of the approving opinion of the Attorney General of Texas, as recorded in the Bond Register of the Comptroller of Public Accounts of the State of Texas, to the effect that the 42

44 Attorney General has examined a transcript of proceedings authorizing the issuance of the Bonds, and that based upon such examination, the Bonds are valid and binding obligations of the District payable from the proceeds of an annual ad valorem tax, levied without legal limitation as to rate or amount, upon all taxable property within the District. The District will also furnish the approving legal opinion of Allen Boone Humphries Robinson LLP, Houston, Texas, Bond Counsel, to a like effect and to the effect that (i) interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes under existing law, and (ii) the Bonds are not subject to the alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the adjusted current earnings adjustment for corporations. In addition to serving as Bond Counsel, Allen Boone Humphries Robinson LLP, also serves as general counsel to the District on matters not related to the issuance of bonds. The legal fees to be paid to Bond Counsel for services rendered in connection with the issuance of the Bonds are contingent upon the issuance, sale and delivery of the Bonds. Certain legal matters will be passed upon for the Underwriters by their counsel, Coats, Rose, Yale, Ryman & Lee P.C. The various legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of the expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. No-Litigation Certificate The District will furnish the Underwriters a certificate, executed by the President and Secretary of the Board, and dated as of the date of delivery of the Bonds, that to their knowledge, no litigation is pending or threatened affecting the validity of the Bonds, or the levy and/or collection of taxes for the payment thereof, or the organization or boundaries of the District, or the title of the officers thereof to their respective offices. No Material Adverse Change The obligations of the Initial Purchaser to take and pay for the Bonds, and of the District to deliver the Bonds, are subject to the condition that, up to the time of delivery of and receipt of payment for the Bonds, there shall have been no material adverse change in the condition (financial or otherwise) of the District subsequent to the date of sale from that set forth or contemplated in the Official Statement, as it may have been supplemented or amended through the date of sale. TAX MATTERS In the opinion of Allen Boone Humphries Robinson LLP, Bond Counsel, (i) interest on the Bonds is excludable from gross income for federal income tax purposes under existing law, and (ii) the Bonds are not subject to the alternative minimum tax on individuals and corporations, except for certain alternative minimum tax consequences for corporations. The Internal Revenue Code of 1986, as amended (the "Code") imposes a number of requirements that must be satisfied for interest on state or local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of proceeds and the source of repayment, limitations on the investment of proceeds prior to expenditure, a requirement that excess arbitrage earned on the investment of proceeds be paid periodically to the United States and a requirement that the issuer file an information report with the Internal Revenue Service (the "Service"). The District has covenanted in the Resolution that is will comply with these requirements. Bond Counsel s opinion will assume continuing compliance with the covenants of the Resolution pertaining to those sections of the Code which affect the exclusion from gross income of interest on the Bonds for federal income tax purpose, and in addition, will rely on representations by the District, the District s Financial Advisor and the Initial Purchaser with respect to matters solely within the knowledge of the District, the District s Financial Advisor and the Initial Purchaser, respectively, which Bond Counsel has not independently verified. The District will further rely on the report of Grant Thornton, LLP, Verification Agent, regarding the mathematical accuracy of certain computations. If the District should fail to comply with the covenants in the Resolution or if the foregoing representations or report should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds, regardless of the date on which the event causing such taxability occurs. Under the Code, taxpayers are required to report on their returns the amount of tax-exempt interest, such as interest on the Bonds, received or accrued during the year. Payments of interest on tax-exempt obligations such as the Bonds are in many cases required to be reported to the Service. Additionally, backup withholding may apply to any 43

45 such payments to any owner who is not an "exempt recipient" and who fails to provide certain identifying information. Individuals generally are not exempt recipients, whereas corporations and certain other entities generally are exempt recipients. The Code also imposes a 20% alternative minimum tax on the "alternative minimum taxable income" of a corporation if the amount of such alternative minimum tax is greater than the amount of the corporation s regular income tax. Generally, the alternative minimum taxable income of a corporation (other than any S corporation, regulated investment company, REIT, REMIC or FASIT), includes 75% of the amount by which its "adjusted current earnings" exceeds its other "alternative minimum taxable income." Because interest on tax exempt obligations, such as the Bonds, is included in a corporation s "adjusted current earnings," ownership of the Bonds could subject a corporation to alternative minimum tax consequences. Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt of interest on, or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations, and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the United States may be subject to the "branch profits tax" on their effectivelyconnected earnings and profits, including tax-exempt interest such as interest on the Bonds. These categories of prospective purchasers should consult their own tax advisors as to the applicability of these consequences. Bond Counsel s opinions are based on existing law, which is subject to change. Such opinions are further based on Bond Counsel s knowledge of facts as of the date hereof. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may thereafter come to Bond Counsel s attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, Bond Counsel s opinions are not a guarantee of result and are not binding on the Service; rather, such opinions represent Bond Counsel s legal judgment based upon its review of existing law and in reliance upon the representations and covenants referenced above that it deems relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the District as the taxpayer and the owners of the Bonds may not have a right to participate in such audit. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit regardless of the ultimate outcome of the audit. Tax Accounting Treatment of Original Issue Premium The issue price of the Bonds exceeds the stated redemption price payable at maturity of such Bonds. Such Bonds (the "Premium Bonds") are considered for federal income tax purposes to have "bond premium" equal to the amount of such excess. The basis of a Premium Bond in the hands of an initial owner is reduced by the amount of such excess that is amortized during the period such initial owner holds such Premium Bond in determining gain or loss for federal income tax purposes. This reduction in basis will increase the amount of any gain or decrease the amount of any loss recognized for federal income tax purposes on the sale or other taxable disposition of a Premium Bond by the initial owner. No corresponding deduction is allowed for federal income tax purposes for the reduction in basis resulting from amortizable bond premium. The amount of bond premium on a Premium Bond that is amortizable each year (or shorter period in the event of a sale or disposition of a Premium Bond) is determined using the yield to maturity on the Premium Bond based on the initial offering price of such Bond. The federal income tax consequences of the purchase, ownership and redemption, sale or other disposition of Premium Bonds that are not purchased in the initial offering at the initial offering price may be determined according to rules that differ from those described above. All owners of Premium Bonds should consult their own tax advisors with respect to the determination for federal, state, and local income tax purposes of amortized bond premium upon the redemption, sale or other disposition of a Premium Bond and with respect to the federal, state, local, and foreign tax consequences of the purchase, ownership, and sale, redemption or other disposition of such Premium Bonds. 44

46 Qualified Tax-Exempt Obligations The Code requires a pro rata reduction in the interest expense deduction of a financial institution to reflect such financial institution s investment in tax-exempt obligations acquired after August 7, An exception to the foregoing provision is provided in the Code for qualified tax-exempt obligations, which include tax-exempt obligations, such as the Bonds, (a) designated by the issuer as qualified tax-exempt obligations and (b) issued by a political subdivision for which the aggregate amount of tax-exempt obligations (not including private activity bonds other than qualified 501(c)(3) bonds) to be issued during the calendar year is not expected to exceed $10,000,000. The District has designated the Bonds as qualified tax-exempt obligations and has represented that the aggregate amount of tax-exempt bonds (including the Bonds) issued by the District and entities subordinate to the District during calendar year 2014 is not expected to exceed $10,000,000 and that the District and entities subordinate to the District have not designated more than $10,000,000 in qualified tax-exempt obligations (including the Bonds) during calendar year Notwithstanding this exception, financial institutions acquiring the bonds will be subject to a 20% disallowance of allocable interest expense. VERIFICATION OF MATHEMATICAL CALCULATIONS The arithmetical accuracy of certain computations included in the schedules provided by the Underwriters on behalf of the District relating to (a) computation of the adequacy of the principal or redemption price of and interest on the Refunded Bonds, (b) the computation of the yields on the Bonds and was verified by Grant Thornton L.L.P. The computations were independently verified by Grant Thornton L.L.P., based upon certain assumptions and information supplied by the Underwriters on behalf of the District, and the District. Grant Thornton L.L.P. has restricted its procedures to verifying the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information upon which the computations are based and accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions or the achievability of future events. CONTINUING DISCLOSURE OF INFORMATION In the Bond Resolution, the District has the following agreement for the benefit of the holders and beneficial owners of the Bonds. The District is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the District will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information to the Municipal Securities Rulemaking Board ( MSRB ). The MSRB has established the Electronic Municipal Market Access ( EMMA ) system. Annual Reports The District will provide certain updated financial information and operating data to EMMA annually. The information to be updated with respect to the District includes all quantitative financial information and operating data of the general type included in this Official Statement under the headings "DISTRICT DEBT" (except under the subheading "Estimated Overlapping Debt Statement"), "TAX DATA," and "APPENDIX B" (Financial Statements of the District). The District will update and provide this information within six months after the end of each of its fiscal years ending in or after The District will provide the updated information to EMMA. Any information so provided shall be prepared in accordance with generally accepted auditing standards or other such principles as the District may be required to employ from time to time pursuant to state law or regulation, and audited if the audit report is completed within the period during which it must be provided. If the audit report is not complete within such period, then the District shall provide unaudited financial statements for the applicable fiscal year to EMMA within such six month period, and audited financial statements when the audit report becomes available. The District s previous fiscal year end was September 30. However, the District changed its fiscal year end to February 28. Accordingly, it must provide updated information by August 31 in each year, beginning on August 31, If the District again changes its fiscal year, it will notify EMMA of the change. Material Event Notices The District will provide timely notices of certain events to the MSRB, but in no event will such notices be provided to the MSRB in excess of ten business days after the occurrence of an event. The District will provide notice of any of the following events with respect to the Bonds: (1) principal and interest payment delinquencies; (2) non-payment 45

47 related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701 TEB) or other material notices or determinations with respect to the tax-exempt status of the Bonds, or other events affecting the taxexempt status of the Bonds; (7) modifications to rights of beneficial owners of the Bonds, if material; (8) bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the District or other obligated person within the meaning of CFR c2-12 (the "Rule"); (13) consummation of a merger, consolidation, or acquisition involving the District or other obligated person within the meaning of the Rule or the sale of all or substantially all of the assets of the District or other obligated person within the meaning of the Rule, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material. The term "material" when used in this paragraph shall have the meaning ascribed to it under federal securities laws. Neither the Bonds nor the Bond Resolution makes any provision for debt service reserves or liquidity enhancement. In addition, the District will provide timely notice of any failure by the District to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports." Availability of Information from EMMA The District has agreed to provide the information only to the MSRB. The MSRB has prescribed that such information must be filed via EMMA. The MSRB makes the information available to the public without charge and investors will be able to access continuing disclosure information filed with the MSRB at Limitations and Amendments The District has agreed to update information and to provide notices of material events only as described above. The District has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The District makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The District disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders or beneficial owners of Bonds may seek a writ of mandamus to compel the District to comply with its agreement. The District may amend its continuing disclosure agreement from time to time to adapt the changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the District, if but only if the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering made hereby in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and either the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the amendment or any person unaffiliated with the District (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The District may amend or repeal the agreement in the Bond Resolution if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid or unenforceable, but only to the extent that its right to do so would not prevent the Initial Purchaser from lawfully purchasing the Bonds in the initial offering. If the District so amends the agreement, it has agreed to include with any financial information or operating data next provided in accordance with its agreement described above under Annual Reports an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. Compliance With Prior Undertakings During the last five years, the District has complied in all material respects with all continuing disclosure agreements made by them in accordance with SEC Rule 15c

48 OFFICIAL STATEMENT General The information contained in this Official Statement has been obtained primarily from the District's records, the Engineer, the Developer, the Tax Assessor/Collector and other sources believed to be reliable; however, no representation is made as to the accuracy or completeness of the information contained herein, except as described below. The summaries of the statutes, resolutions and engineering and other related reports set forth herein are included subject to all of the provisions of such documents. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Experts The information contained in the Official Statement relating to engineering and to the description of the System, and, in particular, that engineering information included in the section entitled THE DISTRICT Description has been provided by LJA Engineering, Inc. and that engineering information included in the section entitled THE SYSTEM, as related to Water Supply and Wastewater Treatment, has been provided by Costello, Inc. and has been included herein in reliance upon the authority of said firm as experts in the field of civil engineering. The information contained in the Official Statement relating to assessed valuations of property generally and, in particular, that information concerning collection rates and valuations contained in the sections captioned "TAX DATA" and "DISTRICT DEBT" was provided by Ms. Esther Flores of Tax Tech, Inc. and the Appraisal District. Such information has been included herein in reliance upon Ms. Flores s authority as an expert in the field of tax collection and the Appraisal District's authority as an expert in the field of tax assessing. Certification as to Official Statement The District, acting by and through its Board of Directors in its official capacity and in reliance upon the experts listed above, hereby certifies, as of the date hereof, that to the best of its knowledge and belief, the information, statements and descriptions pertaining to the District and its affairs herein contain no untrue statements of a material fact and do not omit to state any material fact necessary to make the statements herein, in light of the circumstances under which they were made, not misleading. The information, descriptions and statements concerning entities other than the District, including particularly other governmental entities, have been obtained from sources believed to be reliable, but the District has made no independent investigation or verification of such matters and makes no representation as to the accuracy or completeness thereof. Updating of Official Statement If, subsequent to the date of the Official Statement, the District learns, through the ordinary course of business and without undertaking any investigation or examination for such purposes, or is notified by the Underwriters, of any adverse event which causes the Official Statement to be materially misleading, and unless the Underwriters elect to terminate its obligation to purchase the Bonds, the District will promptly prepare and supply to the Underwriters an appropriate amendment or supplement to the Official Statement satisfactory to the Underwriters; provided, however, that the obligation of the District to so amend or supplement the Official Statement will terminate when the District delivers the Bonds to the Underwriters, unless the Underwriters notify the District in writing on or before such date that less than all of the Bonds have been sold to ultimate customers, in which case the District's obligations hereunder will extend for an additional period of time (but not more than 90 days after the date the District delivers the Bonds) until all of the Bonds have been sold to ultimate customers. 47

49 CONCLUDING STATEMENT The information set forth herein has been obtained from the District's records, audited financial statements and other sources which are considered to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will ever be realized. All of the summaries of the statutes, documents and resolutions contained in this Official Statement are made subject to all of the provisions of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such summarized documents for further information. Reference is made to official documents in all respects. This Official Statement was approved by the Board of Directors of Sienna Plantation Municipal Utility District No. 3 as of the date shown on the first page hereof. ATTEST: /s/ Robert N. Coltharp President, Board of Directors Sienna Plantation Municipal Utility District No. 3 /s/ Kathy Bender Secretary, Board of Directors Sienna Plantation Municipal Utility District No. 3 48

50 APPENDIX A AERIAL PHOTOGRAPH OF THE DISTRICT

51 APPENDIX B FINANCIAL STATEMENTS OF THE DISTRICT SIENNA PLANTATION MUNICIPAL UTILITY DISTRICT NO. 3 FORT BEND COUNTY, TEXAS FINANCIAL REPORT September 30, 2012

52 oo0oo Table of Contents Schedule Page Independent Auditors Report 1 Management s Discussion and Analysis 5 BASIC FINANCIAL STATEMENTS Statement of Net Assets and Governmental Funds Balance Sheet 12 Statement of Activities and Governmental Funds Revenues, Expenditures and Changes in Fund Balances 13 Notes to Basic Financial Statements 15 REQUIRED SUPPLEMENTARY INFORMATION Budgetary Comparison Schedule General Fund 30 Notes to Required Supplementary Information 31 TEXAS SUPPLEMENTARY INFORMATION Services and Rates TSI 1 34 General Fund Expenditures TSI 2 36 Investments TSI 3 37 Taxes Levied and Receivable TSI 4 38 Long Term Debt Service Requirements by Years TSI 5 39 Change in Long Term Bonded Debt TSI 6 50 Comparative Schedule of Revenues and Expenditures General Fund TSI 7a 52 Comparative Schedule of Revenues and Expenditures Debt Service Fund TSI 7b 54 Board Members, Key Personnel and Consultants TSI 8 56 oo0oo

53 McGrath & Co., PLLC Certified Public Accountants P.O. Box Houston, Texas Mark W. McGrath CPA co.com Colette M. Garcia CPA co.com Board of Directors Sienna Plantation Municipal Utility District No. 3 Fort Bend County, Texas Independent Auditors Report We have audited the accompanying financial statements of the governmental activities and each major fund of Sienna Plantation Municipal Utility District No. 3, as of and for the year ended September 30, 2012, which collectively comprise the basic financial statements as listed in the table of contents. These basic financial statements are the responsibility of Sienna Plantation Municipal Utility District No. 3 s management. Our responsibility is to express an opinion on these basic financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall basic financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities and each major fund of Sienna Plantation Municipal Utility District No. 3, as of September 30, 2012, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. 1

54 Board of Directors Sienna Plantation Municipal Utility District No. 3 Fort Bend County, Texas Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s financial statements as a whole. The Texas Supplementary Information is presented for purposes of additional analysis and is not a required part of the basic financial statements. The Texas Supplementary Information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied to the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements taken as a whole. Houston, Texas January 23,

55 Management s Discussion and Analysis 3

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57 Sienna Plantation Municipal Utility District No. 3 Management s Discussion and Analysis September 30, 2012 Using this Annual Report Within this section of the financial report of Sienna Plantation Municipal Utility District No. 3 (the District ), the District s Board of Directors provides a narrative discussion and analysis of the financial activities of the District for the fiscal year ended September 30, This analysis should be read in conjunction with the independent auditors report and the basic financial statements that follow this section. In addition to this discussion and analysis, this annual report consists of: The District s basic financial statements; Notes to the basic financial statements, which provide additional information essential to a full understanding of the data provided in the financial statements; Supplementary information required by the Governmental Accounting Standards Board (GASB) concerning the District s budget; and Other Texas supplementary information required by the District s state oversight agency, the Texas Commission on Environmental Quality (TCEQ). Overview of the Financial Statements The District prepares its basic financial statements using a format that combines fund financial statements and government wide statements onto one financial statement. The combined statements are the Statement of Net Assets and Governmental Funds Balance Sheet and the Statement of Activities and Governmental Funds Revenues, Expenditures and Changes in Fund Balances. Each statement contains an adjustments column which quantifies the differences between the government wide and fund level statements. Additional details of the adjustments are provided in Note 2 to the basic financial statements. Government Wide Financial Statements The focus of government wide financial statements is on the overall financial position and activities of the District, both long term and short term. The District s government wide financial statements consist of the Statement of Net Assets and the Statement of Activities, which are prepared using the accrual basis of accounting. The Statement of Net Assets includes all of the assets and liabilities of the District, with the difference reported as net assets. Over time, changes in net assets may provide a useful indicator of whether the financial position of the District as a whole is improving or deteriorating. The Statement of Activities reports how the District s net assets have changed during the fiscal year. All revenues and expenses are included on this statement, regardless of whether cash has been received or paid. Fund Financial Statements The fund financial statements include the Governmental Funds Balance Sheet and the Governmental Funds Revenues, Expenditures and Changes in Fund Balances. The focus of fund financial statements is on specific activities of the District rather than the District as a whole, reported using modified accrual accounting. These statements report on the District s use of available financial resources and the balances of available financial resources at the end of the year. Except for the General Fund, a specific fund is established to satisfy managerial control 5

58 Sienna Plantation Municipal Utility District No. 3 Management s Discussion and Analysis September 30, 2012 over resources or to satisfy finance related legal requirements established by external parties, governmental statutes or regulations. For further discussion on the government wide and fund financial statements, please refer to Note 1 in the financial statements. Financial Analysis of the District as a Whole In the government wide statements, the difference between assets and liabilities is called net assets. The District s net assets at September 30, 2012, were negative $217,151. Net assets are categorized based on their availability to provide financial resources for the District. Net assets that are Invested in capital assets, net of related debt represent the District s investments in capital assets, less any debt used to acquire those assets that is still outstanding. Resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Restricted net assets represent amounts that are restricted for future debt service requirements. Unrestricted net assets represent amounts available to meet the District s future obligations. A comparative summary of the District s overall financial position, as of September 30, 2012 and 2011, is as follows: Current and other assets $ 10,248,732 $ 10,452,125 Capital assets 32,908,742 33,783,048 Total assets 43,157,474 44,235,173 Current liabilities 1,749,837 1,743,575 Long term liabilities 41,624,788 42,752,433 Total liabilities 43,374,625 44,496,008 Net assets: Invested in capital assets, net of related debt (6,840,279) (6,767,262) Restricted 943,865 1,158,830 Unrestricted 5,679,263 5,347,597 Total net assets $ (217,151) $ (260,835) 6

59 Sienna Plantation Municipal Utility District No. 3 Management s Discussion and Analysis September 30, 2012 The total net assets of the District increased by $43,684. A comparative summary of the District s Statement of Activities for the past two years is as follows: Revenues Property taxes, penalties and interest $ 4,594,181 $ 4,542,106 Water and sewer 2,072,874 1,991,106 Other 570, ,873 Total Revenues 7,237,207 7,293,085 Expenses Current service operations 2,874,138 2,941,458 Interest and fiscal agent fees 2,166,482 2,175,180 Intergovernmental 930, ,245 Depreciation and amortization 1,222,762 1,034,213 Total Expenses 7,193,523 7,081,096 Change in net assets 43, ,989 Net assets, beginning of year (260,835) (472,824) Net assets, end of year $ (217,151) $ (260,835) Financial Analysis of the District s Funds The District s combined fund balances, as of September 30, 2012, were $7,982,832. following is a summary of changes in fund balances for the prior two fiscal years: The Increase Increase 2012 (Decrease) 2011 (Decrease) 2010 General Fund $ 5,665,082 $ 2,589,327 $ 3,075,755 $ 668,587 $ 2,407,168 Debt Service Fund 1,086,285 (2,465,511) 3,551,796 (636,464) 4,188,260 Capital Projects Fund 1,231,465 (70,476) 1,301,941 (1,488) 1,303,429 $ 7,982,832 $ 53,340 $ 7,929,492 $ 30,635 $ 7,898,857 Fund balance in the General Fund increased primarily as a result of revenues exceeding ongoing expenditures. Fund balances in the Debt Service Fund decreased as a result of debt service requirements exceeding property tax revenues. It is important to note that the District sets its annual debt service tax rate as recommended by its financial advisor, who monitors projected cash flows in the Debt Service Fund to ensure that the District will be able to meet its future debt service requirements. General Fund Budgetary Highlights The Board of Directors adopts an annual unappropriated budget for the General Fund prior to the beginning of each fiscal year. The Board did not amend the budget during the fiscal year. 7

60 Sienna Plantation Municipal Utility District No. 3 Management s Discussion and Analysis September 30, 2012 Since the District s budget is primarily a planning tool, actual results varied from the budgeted amounts. Actual net change in fund balance was $339,029 greater than budgeted. The Budgetary Comparison Schedule on page 32 of this report provides variance information per financial statement line item. Capital Assets Capital assets held by the District at September 30, 2012 and 2011 are summarized as follows: Capital assets not being depreciated: Land and improvements $ 1,039,686 $ 1,039,686 Capital assets being depreciated/amortized: Infrastructure 28,451,336 28,451,336 Mater District connections 10,892,630 10,892,630 39,343,966 39,343,966 Less accumulated depreciation/amortization: Infrastructure (5,070,280) (4,438,033) Mater District connections (2,404,630) (2,162,571) (7,474,910) (6,600,604) Capital assets being depreciated/amortized, net 31,869,056 32,743,362 Capital assets, net $ 32,908,742 $ 33,783,048 Long Term Debt At September 30, 2012 and 2011, the District had total bonded debt outstanding as shown below: Series $ 215,000 $ 2,955, ,055,000 3,150, A 4,955,000 5,110, B 5,425,000 5,585, ,260,000 5,425, ,190,000 6,355, ,315,000 6,400, Refunding 4,740,000 5,065, A Refunding 5,070,000 5,180, Refunding 2,795,000 $ 44,020,000 $ 45,225,000 During the year, the District issued $2,795,000 in unlimited tax and refunding bonds. At September 30, 2012, the District had $28,575,000 unlimited tax bonds authorized, but unissued for refunding purposes. 8

61 Sienna Plantation Municipal Utility District No. 3 Management s Discussion and Analysis September 30, 2012 Next Year s Budget In establishing the budget for the next fiscal year, the Board considered various economic factors that may affect the District, most notably projected revenues from property taxes and water/sewer services and the projected cost of operating the District and providing services to customers. A comparison of next year s budget to current year actual amounts for the General Fund is as follows: Property Taxes 2012 Actual 2013 Budget Total revenues $ 6,251,572 $ 3,733,104 Total expenditures (3,662,245) (3,732,783) Net change in fund balance 2,589, Beginning fund balance 3,075,755 5,665,082 Ending fund balance $ 5,665,082 $ 5,665,403 The District s property tax base decreased approximately $37,807,000 for the 2012 tax year from $630,864,358 to $593,057,322. For the 2012 tax year, the District has levied a maintenance tax rate of $0.07 per $100 of assessed value and a debt service tax rate of $0.56 per $100 of assessed value, and a contract tax rate of $0.09, for a total combined tax rate of $0.72. Current year tax rates were $0.48 for maintenance and operations, $0.15 for debt service and $0.09 for contract tax, for a total combined tax rate of $0.72 per $100 of assessed value. 9

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63 Basic Financial Statements 11

64 Sienna Plantation Municipal Utility District No. 3 Statement of Net Assets and Governmental Funds Balance Sheet September 30, 2012 General Fund Debt Service Fund Capital Projects Fund Total Adjustments Statement of Net Assets Assets Cash $ 2,363,189 $ 1,062,897 $ 9,613 $ 3,435,699 $ $ 3,435,699 Investments 2,730,068 17, ,269 3,590,127 3,590,127 Taxes receivable 14,181 16,410 30,591 30,591 Customer service receivables, net 329, , ,573 Prepaid items 5,489 5,489 5,489 Internal balances (6,998) 6,998 Due from other governments 42,073 42,073 42,073 Restricted assets: Cash 321, , ,026 Investments 62,298 62,298 62,298 Operating reserve 212, , ,612 Extraordinary/contingency reserve 134, , ,942 Deferred bond issue costs 2,084,302 2,084,302 Capital assets not being depreciated 1,039,686 1,039,686 Capital assets, net of depreciation 31,869,056 31,869,056 Total Assets $ 5,825,129 $ 1,104,095 $ 1,235,206 $ 8,164,430 34,993,044 43,157,474 Liabilities Accounts payable $ 58,961 1,400 $ 3,741 $ 64,102 64,102 Due to other governments 73,780 73,780 73,780 Deferred revenues 14,181 16,410 30,591 (30,591) Customer deposits 13,125 13,125 13,125 Accrued interest payable 158, ,830 Long term debt: Due within one year 1,440,000 1,440,000 Due after one year 41,624,788 41,624,788 Total Liabilities 160,047 17,810 3, ,598 43,193,027 43,374,625 Fund Balances/Net Assets Fund Balances: Nonspendable 353, ,043 (353,043) Restricted 1,086,285 1,231,465 2,317,750 (2,317,750) Committed 20,677 20,677 (20,677) Unassigned 5,291,362 5,291,362 (5,291,362) Total Fund Balances 5,665,082 1,086,285 1,231,465 7,982,832 (7,982,832) Total Liabilities and Fund Balances $ 5,825,129 $ 1,104,095 $ 1,235,206 $ 8,164,430 Net Assets: Invested in capital assets, net of related debt (6,840,279) (6,840,279) Restricted for debt service 943, ,865 Unrestricted 5,679,263 5,679,263 Total Net Assets $ (217,151) $ (217,151) See notes to basic financial statements. 12

65 Sienna Plantation Municipal Utility District No. 3 Statement of Activities and Governmental Funds Revenues, Expenditures and Changes in Fund Balances For the Year Ended September 30, 2012 Debt Service Fund Capital Projects Fund Total Adjustments Statement of Activities General Fund Revenues: Water service $ 953,810 $ $ $ 953,810 $ $ 953,810 Sewer service 1,119,064 1,119,064 1,119,064 Property taxes 3,592, ,579 4,541,784 (11,968) 4,529,816 Penalties and interest 26,935 39,499 66,434 (2,069) 64,365 Tap connection and inspection 25,781 25,781 25,781 Surface water fees 515, , ,617 Accrued interest on bonds at date of sale 4,820 4,820 (4,820) Miscellaneous 8,715 8,715 8,715 Investment earnings 9,445 8,755 1,839 20,039 20,039 Total Revenues 6,251,572 1,002,653 1,839 7,256,064 (18,857) 7,237,207 Expenditures/Expenses: Current service operations Purchased services 1,094,496 1,094,496 1,094,496 Professional fees 131,181 62, , ,046 Contracted services 546,732 74, , ,039 Repairs and maintenance 159, , ,883 Surface water 659, , ,374 Administrative 88,277 4,862 93,139 93,139 Other 52,161 52,161 52,161 Debt service Principal 1,360,000 1,360,000 (1,360,000) Interest and fiscal agent fees 2,062,688 9,450 2,072,138 94,344 2,166,482 Debt issuance costs 172, ,577 (172,577) Intergovernmental Contractual obligations 560, , ,000 Master District replacement fund 97,104 97,104 97,104 Transfer to Master District 273, , ,037 Depreciation and amortization 1,222,762 1,222,762 Total Expenditures/Expenses 3,662,245 3,674,433 72,315 7,408,993 (215,471) 7,193,523 Excess (deficiency) of revenues over/(under) expenditures 2,589,327 (2,671,780) (70,476) (152,929) 152,929 Other Financing Sources/Uses: Proceeds from refunding bonds 2,795,000 2,795,000 (2,795,000) Debt service principal (2,640,000) (2,640,000) 2,640,000 Bond discount (29,482) (29,482) 29,482 Bond premium 80,751 80,751 (80,751) Net change in fund balances 2,589,327 (2,465,511) (70,476) 53,340 (53,340) Change in net assets 43,684 43,684 Fund Balance/Net Assets: Beginning of the year 3,075,755 3,551,796 1,301,941 7,929,492 (8,190,327) (260,835) End of the year $ 5,665,082 $ 1,086,285 $ 1,231,465 $ 7,982,832 $ (8,199,983) $ (217,151) See notes to basic financial statements. 13

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67 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 1 Summary of Significant Accounting Policies The accounting policies of Sienna Plantation Municipal Utility District No. 3 (the District ) conform with accounting principles generally accepted in the United States of America. The following is a summary of the most significant policies: Creation The District was organized, created and established pursuant to an order of the Texas Water Commission, statutory predecessor to the Texas Commission on Environmental Quality, dated March 10, 1997, and operates in accordance with the Texas Water Code, Chapters 49 and 54. The Board of Directors held its first meeting on November 20, 1997 and the first bonds were sold on July 11, The District s primary activities include the construction, maintenance and operation of water, sewer and drainage facilities. The District has contracted with various consultants to provide services to operate and administer the affairs of the District. The District has no employees, related payroll or pension costs. Reporting Entity The District is a political subdivision of the State of Texas governed by an elected five member board. The Governmental Accounting Standards Board has established the criteria for determining whether or not an entity is a primary government or a component unit of a primary government. The primary criteria are that it has a separately elected governing body; it is legally separate; and it is fiscally independent of other state and local governments. Under these criteria, the District is considered a primary government and is not a component unit of any other government. Additionally, no other entities meet the criteria for inclusion in the District s financial statements as component units. Government Wide and Fund Financial Statements Government wide financial statements display information about the District as a whole. These statements focus on the sustainability of the District as an entity and the change in aggregate financial position resulting from the activities of the fiscal period. Interfund activity, if any, has been removed from these statements. These aggregated statements consist of the Statement of Net Assets and the Statement of Activities. Fund financial statements display information at the individual fund level. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for a specific purpose. Each fund is considered to be a separate accounting entity. The District has three governmental funds types, which are all reported as major funds. 15

68 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 1 Summary of Significant Accounting Policies Government Wide and Fund Financial Statements (continued) The following is a description of the various funds used by the District: The General Fund is used to account for the operations and maintenance of the District s water and sewer system and all other financial transactions not reported in other funds. The principal sources of revenue are property taxes and water and sewer service fees. Expenditures include costs associated with the daily operations of the District. The Debt Service Fund is used to account for the payment of interest and principal on the District s general long term debt. The primary source of revenue for debt service is property taxes. Expenditures include costs incurred in assessing and collecting these taxes. The Capital Projects Fund is used to account for the expenditures of bond proceeds for the construction of the District s water, sewer and drainage facilities. As a special purpose government engaged in a single governmental program, the District has opted to combine its government wide and fund financial statements in a columnar format showing an adjustments column for reconciling items between the two. Measurement Focus and Basis of Accounting The government wide financial statements use the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Property taxes are recognized as revenue in the year for which they are levied. The fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized in the accounting period in which it becomes both available and measurable to finance expenditures of the current period. For this purpose, the government considers revenues to be available if they are collected within sixty days of the end of the current fiscal period. Revenues susceptible to accrual include property taxes, interest earned on investments and income from District operations. Property taxes receivable at the end of the fiscal year are treated as deferred revenues because they are not considered available to pay liabilities of the current period. Expenditures are recognized in the accounting period in which the liability is incurred, if measurable, except for unmatured interest on long term debt, which is recognized when due. Note 2 further details the adjustments from the governmental fund presentation to the government wide presentation. Use of Restricted Resources When both restricted and unrestricted resources are available for use, the District uses restricted resources first, then unrestricted resources as they are needed. 16

69 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 1 Summary of Significant Accounting Policies (continued) Prepaid Items Certain payments made by the District reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government wide and fund financial statements. Receivables All receivables are reported at their gross value and, where appropriate, are reduced by the estimated portion that is expected to be uncollectible. At September 30, 2012, an allowance of $24,000 was provided for possible uncollectible water/sewer accounts. Unbilled Services Receivable Utility revenue is recorded when earned. Customers are billed monthly. The estimated value of services provided but unbilled at year end has been included in the accompanying financial statements. Interfund Activity During the course of operations, transactions occur between individual funds. This can include internal transfers, payables and receivables. This activity is combined as internal balances and is eliminated in both the government wide and fund financial statement presentation. Capital Assets Capital assets, which primarily consist of water, wastewater and drainage facilities and connection charges paid to Sienna Plantation Municipal Utility District No 1, are reported in the government wide financial statements. The District defines capital assets as assets with an initial cost of $5,000 or more and an estimated useful life in excess of one year. Capital assets are recorded at historical cost or estimated historical cost. Donated capital assets are recorded at the estimated fair market value at the date of donation. The District has not capitalized interest incurred during the construction of its capital assets. The costs of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized. Capital assets are depreciated or amortized using the straight line method as follows: Assets Infrastructure Connection charges Useful Life 45 years 45 years 17

70 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 1 Summary of Significant Accounting Policies (continued) Fund Balances Governmental Funds The District s governmental fund balances are classified as follows: Nonspendable amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact. The District s nonspendable fund balances consist of prepaid items and amounts paid to Sienna Plantation Municipal Utility District No. 1 as operating and contingency reserves for regional water and wastewater facilities. Restricted amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments. The District s restricted fund balances consist of unspent bond proceeds in the Capital Projects Fund and property taxes levied for debt service in the Debt Service Fund. Committed amounts that can be used only for specific purposes determined by a formal action of the Board of Directors. The Board is the highest level of decision making authority for the District. Commitments may be established, modified, or rescinded only through ordinances or resolutions approved by the Board. Committed fund balance also incorporates contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements. The District s committed fund balance in the General Fund consists of contract taxes that have been collected, but not yet paid to the Master District. Assigned amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. The District has not adopted a formal policy regarding the assignment of fund balances and does not have any assigned fund balances. Unassigned all other spendable amounts in the General Fund. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses/expenditures during the period reported. These estimates include, among others, the collectibility of receivables and the useful lives and impairment of capital assets. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary. Actual results could differ from the estimates. 18

71 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 1 Summary of Significant Accounting Policies (continued) Significant Bond Resolution and Legal Requirements The District has agreed to file certain information with a Nationally Recognized Municipal Securities Information Repository (NRMSIR) within six months of the District s fiscal year end. The information required to be provided to the NRMSIR include a copy of the District's annual financial statement and other specific information including the District's debt and fund balances, tax data, investment authority and investment practices, investment policy and the system rates. The bond resolutions require the District to provide certain updated financial information and operating data annually and timely notice of specified material events, to certain information to the Municipal Securities Rulemaking Board ( MSRB ). The MSRB has established the electronic Municipal Market Access ( EMMA ) system to receive such information and data. The bond resolutions state that if the District does not qualify for an exception to the requirements of Section 148(f) of the Internal Revenue Code relating to the required rebate to the United States, the District will take all necessary steps to comply with the requirement that certain amounts earned by the District on the investment of the gross proceeds of the Bonds (with the meaning of Section 148(f)(6)(B) of the Code), be rebated to the federal government. This provision has certain records retention requirements, calculation requirements and a requirement to pay the rebate calculated not less often than every fifth anniversary date of the delivery of the Bonds. 19

72 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 2 Adjustment from Governmental to Government wide Basis Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets Total fund balance, governmental funds $ 7,982,832 Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. Historical cost $ 40,383,652 Less accumulated depreciation/amortization (7,474,910) Change due to capital assets 32,908,742 Bond issuance costs are recorded as expenditures in the funds, but are deferred and amortized in the government wide statements. Historical cost 3,040,038 Less accumulated amortization (955,736) Change due to bond issue costs 2,084,302 Property taxes receivable and related penalties and interest have been levied and are due, but are not available soon enough to pay current period expenditures and, therefore, are deferred in the funds. Property taxes receivable 24,095 Penalty and interest receivable 6,496 Change due to property taxes 30,591 Long term liabilities are not due and payable in the current period and, therefore, are not reported as liabilities in the governmental funds, the difference consists of: Bonds payable, net (43,064,788) Accrued interest payable (158,830) Change due to long term debt (43,223,618) Total net assets governmental activities $ (217,151) 20

73 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 2 Adjustment from Governmental to Government wide Basis (continued) Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of the Governmental Funds to the Statement of Activities Net change in fund balances total governmental funds Governmental funds do not report revenues that are not available to pay current obligations. In contrast, such revenues are reported in the Statement of Activities when earned. The difference is for property taxes and penalties and interest. In the Statement of Activities, the cost of capital assets are allocated over their estimated useful lives as depreciation/amortization expense. The issuance of long term debt provides current financial resources to governmental funds, while the repayment of principal uses current financial resources. However, neither transaction has any effect on net assets. Also governmental funds report issuance costs and discounts when the related debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. Issuance of long term debt $ (2,795,000) Payment to escrow agent for refunded bonds 2,640,000 Bond discount 29,482 Issuance costs of long term debt 172,577 Principal payments 1,360,000 Bond premium (80,751) Amortization of bond issuance costs (348,457) Interest expense accrual (99,164) $ 53,340 (14,037) (874,306) 878,687 Change in net assets of governmental activities $ 43,684 Note 3 Deposits and Investments Deposit Custodial Credit Risk Custodial credit risk as it applies to deposits (i.e. cash) is the risk that, in the event of the failure of the depository institution, a government will not be able to recover its deposits or will not be able to recover collateral securities. The Public Funds Collateral Act (Chapter 2257, Texas Government Code) requires that all of the District s deposits with financial institutions be covered by federal depository insurance and, if necessary, pledged collateral held by a third party custodian. The act further specifies the types of securities that can be used as collateral. The District s written investment policy establishes additional requirements for collateralization of deposits. 21

74 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 3 Deposits and Investments (continued) Restricted Cash and Investments At September 30, 2012, the District held in escrow $62,298 from the Series 2001 Bonds, $64,883 from the Series 2003 Bonds and $256,143 from the Series 2008 Bonds, as required by the Texas Commission on Environmental Quality. Investments The District is authorized by the Public Funds Investment Act (Chapter 2256, Texas Government Code) to invest in the following: (1) obligations of the United States or its agencies and instrumentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities, (3) certain collateralized mortgage obligations, (4) other obligations, which are unconditionally guaranteed or insured by the State of Texas or the United States or its agencies or instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States, (5) certain A rated or higher obligations of states and political subdivisions of any state, (6) bonds issued, assumed or guaranteed by the State of Israel, (7) insured or collateralized certificates of deposit, (8) certain fully collateralized repurchase agreements, (9) bankers acceptances with limitations, (10) commercial paper rated A 1 or P 1 or higher and a maturity of 270 days or less, (11) no load money market mutual funds and no load mutual funds, with limitations, (12) certain guaranteed investment contracts, (13) certain qualified governmental investment pools and (14) a qualified securities lending program. The District has adopted a written investment policy to establish the principles by which the District s investment program should be managed. This policy further restricts the types of investments in which the District may invest. As of September 30, 2012, the District s investments consist of the following: Carrying Weighted Average Fund Type Value Rating Maturity General TexPool $ 2,709,391 AAAm 80 days TexPool contract tax 20,677 AAAm 80 days 2,730,068 Debt Service TexPool 17,790 AAAm 80 days Capital Projects TexPool 842,269 AAAm 80 days TexPool Restricted 62,298 AAAm 80 days 904,567 Total $ 3,652,425 22

75 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 3 Deposits and Investments (continued) TexPool The District participates in TexPool, the Texas Local Government Investment Pool. The State Comptroller of Public Accounts exercises oversight responsibility of TexPool, which includes (1) the ability to significantly influence operations, (2) designation of management and (3) accountability for fiscal matters. Additionally, the State Comptroller has established an advisory board composed of both participants in TexPool and other persons who do not have a business relationship with TexPool. The Advisory Board members review the investment policy and management fee structure. Although TexPool is not registered with the SEC as an investment company, it operates in a manner consistent with the SEC s Rule 2a7 of the Investment Company Act of As permitted by GAAP, TexPool uses amortized cost (which excludes unrealized gains and losses) rather than market value to compute share price. Accordingly, the fair value of the District s position in TexPool is the same as the value of TexPool shares. Investment Credit and Interest Rate Risk Investment credit risk is the risk that the investor may not recover the value of an investment from the issuer, while interest rate risk is the risk that the value of an investment will be adversely affected by changes in interest rates. The District s investment policies do not address investment credit and interest rate risk beyond the rating and maturity restrictions established by state statutes. Note 4 Amounts Due to/from Other Funds Amounts due to/from other funds at September 30, 2012, consist of the following: Interfund Receivable Payable General Fund $ 1,562 $ 8,560 Debt Service Fund 8,560 1,562 $ 10,122 $ 10,122 Amounts reported as due to/from between funds are considered temporary loans needed for normal operations and will be repaid during the following fiscal year. 23

76 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 5 Capital Assets A summary of changes in capital assets, for the year ended September 30, 2012, follows: Beginning Ending Balances Additions Balances Capital assets not being depreciated: Land and easements $ 1,039,686 $ $ 1,039,686 Capital assets being depreciated/amortized: Infrastructure 28,451,336 28,451,336 Master District connection charges 10,892,630 10,892,630 39,343,966 39,343,966 Less accumulated depreciation/amortization: Infrastructure (4,438,033) (632,247) (5,070,280) Master District connection charges (2,162,571) (242,059) (2,404,630) (6,600,604) (874,306) (7,474,910) Capital assets being depreciated/amortized, net 32,743,362 (874,306) 31,869,056 Capital assets, net $ 33,783,048 $ (874,306) $ 32,908,742 Depreciation/amortization expense for the current year was $874,306. Note 6 Long Term Debt Long term debt is comprised of the following: Bonds payable $ 44,020,000 Unamortized discounts (964,380) Unamortized premium 76,265 Unamortized deferred difference on refunding (67,097) $ 43,064,788 Due within one year $ 1,440,000 24

77 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 6 Long Term Debt (continued) The District s bonds payable at September 30, 2012, consists of unlimited tax bonds and refunding bonds as follows: Maturity Date, Serially, Interest Amounts Original Interest Beginning/ Payment Call Series Outstanding Issue Rates Ending Dates Dates 2004 $ 215,000 $ 3,225, % September 1, March 1, September 1 September 1, ,055,000 3,325, % 4.80% March 1, March 1, September 1 March 1, A 4,955,000 5,400, % 5.00% March 1, March 1, September 1 March 1, B 5,425,000 6,675, % 4.85% March 1, March 1, September 1 March 1, ,260,000 6,000, % 5.00% March 1, March 1, September 1 March 1, ,190,000 6,800, % 4.75% March 1, March 1, September 1 March 1, ,315,000 6,565, % 6.00% March 1, March 1, September 1 March 1, ,740,000 5,105, % 4.50% March 1, March 1, March 1, Refunding September A 5,070,000 5,205, % 4.00% March 1, March 1, March 1, Refunding September ,795,000 2,795, % 4.00% March 1, March 1, March 1, Refunding September $ 44,020,000 $ 51,095,000 Payments of principal and interest on all series of bonds are to be provided from taxes levied on all properties within the District. Investment income realized by the Debt Service Fund from investment of idle funds will be used to pay outstanding bond principal and interest. The District is in compliance with the terms of its bond resolutions. At September 30, 2012, the District had authorized but unissued bonds in the amount of $28,575,000 for refunding purposes. On June 19, 2012, the District issued its $2,795,000 Series 2012 Unlimited Tax Refunding Bonds at a net effective interest rate of % to refund $2,640,000 of outstanding Series 2004 bonds. The District refunded the bonds to reduce total debt service payments over future years by approximately $209,990 and to obtain an economic gain (difference between the present values of the debt service payments on the old and new debt) of approximately $110,

78 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 6 Long Term Debt (continued) Changes in the District s long term debt during the year are as follows: Bonds payable, beginning of year $ 45,225,000 Bonds issued 2,795,000 Principal payments (1,360,000) Bonds refunded (2,640,000) Bonds payable, end of year $ 44,020,000 As of September 30, 2012, annual debt service requirements on bonds outstanding are as follows: Note 7 Property Taxes Year Principal Interest Totals 2013 $ 1,440,000 $ 1,945,556 $ 3,385, ,490,000 1,889,230 3,379, ,555,000 1,830,690 3,385, ,610,000 1,772,690 3,382, ,675,000 1,710,968 3,385, ,735,000 1,645,956 3,380, ,805,000 1,576,790 3,381, ,885,000 1,501,517 3,386, ,965,000 1,420,456 3,385, ,050,000 1,334,747 3,384, ,140,000 1,244,647 3,384, ,235,000 1,149,777 3,384, ,335,000 1,049,756 3,384, ,440, ,693 3,384, ,570, ,833 3,403, ,700, ,618 3,415, ,865, ,680 3,452, ,035, ,073 3,484, ,155, ,625 3,440, ,335,000 96,956 3,431,956 $ 44,020,000 $ 23,986,258 $ 68,006,258 On May 7, 1998, the voters of the District authorized the District s Board of Directors to levy taxes annually for use in financing general operations limited to $1.10 per $100 of assessed value. The District s bond resolutions require that property taxes be levied for use in paying interest and principal on long term debt and for use in paying the cost of assessing and collecting taxes. Taxes levied to finance debt service requirements on long term debt are without limitation as to rate or amount. 26

79 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 7 Property Taxes (continued) All property values and exempt status, if any, are determined by the Fort Bend Central Appraisal District. Assessed values are determined as of January 1 of each year, at which time a tax lien attaches to the related property. Taxes are levied around October/November, are due upon receipt and are delinquent the following February 1. Penalty and interest attach thereafter. Property taxes are collected based on rates adopted in the year of the levy. The District s 2012 fiscal year was financed through the 2011 tax levy. The District levied property taxes of $0.72 per $100 of assessed value, of which $0.48 was allocated to maintenance and operations and $0.15 was allocated to debt service and $0.09 was allocated to contract tax. The resulting tax levy was $4,542,223 on the adjusted taxable value of $630,864,358. Net property taxes receivable, at September 30, 2012, consisted of the following: Current year taxes receivable $ 13,501 Prior years taxes receivable 10,594 24,095 Penalty and interest receivable 6,496 Net property taxes receivable $ 30,591 Note 8 Contracts with Sienna Plantation Municipal Utility District No. 1 The District, together with each conservation and reclamation district located within Sienna Plantation, has contracted with Sienna Plantation Municipal Utility District No. 1 (the Master District ) to provide water supply and distribution, sewage collection and treatment services, major trunk storm sewer drainage services, fire protection and other services and facilities permitted by law for the entire Sienna Plantation development. The District has incurred, or incurs, the following expenditures with respect to this contract: The District s prorated share of the Master District s capital cost (connection charges) which future costs will be capitalized, Monthly connection charges in an amount sufficient to meet the District s prorated share of the operational and maintenance costs of the central facilities, based on the relevant use of such facilities by customers in the District, Monthly charges for the Master District s renewal and replacement fund, which was established by the Master District to provide funding to repair and replace aging Master District facilities, Contract tax payments for the District s pro rata share of construction, expansion and improvements of Master District facilities financed by the District s contract tax levy of $0.09 per $100 of assessed valuation, and Other amounts as required by the Master District to finance the District s portion of regional facilities. 27

80 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 8 Contracts with Sienna Plantation Municipal Utility District No. 1 (continued) During the period ended September 30, 2012, the District incurred the following costs pursuant to this contract: Monthly charges for purchased services in the amount of $1,094,496, Monthly charges for the Master District renewal and replacement fund of $97,104, Contract tax payments for Master District facilities in the amount of $560,000, A transfer in the amount of $273,037 for the District s pro rata share of the construction of a fire station and purchase of a fire truck. The contract authorizes the establishment of an operating and maintenance reserve by the Master District equivalent to three months operating and maintenance expenses, as set forth in the Master District s annual budget. The Master District may adjust the reserve as needed, not less than annually. At September 30, 2012, the District has paid $212,612 to the Master District for the operating reserve and $134,942 for an extraordinary/contingency reserve. Master District Debt The Master District is authorized to issue bonds for the purpose of acquiring and constructing facilities needed to provide services to all participating districts. The District shall contribute to the payment of debt service requirements based on its pro rata share of the total certified assessed valuation of all participating districts. As of September 30, 2012, the Master District has not issued any bonds. Wastewater Treatment Services Contract Regional wastewater treatment services will be provided to each district within Sienna Plantation by the Master District pursuant to the First Amendment and Restated Wastewater Treatment Services Contract (the Wastewater Agreement ) between the Master District and the City of Missouri City. Pursuant to the Wastewater Agreement, the Master District will own and operate one or more temporary wastewater treatment plants to serve development within Sienna Plantation until such time as it has been determined that a permanent wastewater treatment plant is required. The Master District is responsible for the ultimate design and construction of the permanent wastewater treatment plant, with the costs of such facility allocated among the participating districts on a pro rata basis. The Master District agrees to obtain City approval prior to the design and construction of the permanent wastewater treatment plant and to ensure proper compliance with the City s regionalization scheme. 28

81 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 8 Contracts with Sienna Plantation Municipal Utility District No. 1 (continued) Joint Construction Agreement The Master District and the City of Missouri City entered into a fire protection agreement which establishes the terms and conditions for the construction of a new fire station and the acquisition of a new fire truck to serve Sienna Plantation. The cost of the fire station and the fire truck is to be paid by the internal Sienna Plantation Districts that will be served by the fire station on a pro rata basis. While the District and Sienna Plantation Municipal Utility District Nos. 1 and 2 have contributed their pro rate shares of the costs to the Master District, Sienna Plantation Municipal Utility District Nos. 4, 5, 6 and 7 (Sienna South Districts) have informed the Master District that they are currently unable to contribute their pro rata shares. On September 27, 2012, the District and the Master District entered into a Joint Construction Agreement, whereby the District agrees to advance at least $2,076,000, but not more than $3,000,000, to the Master District to ensure the construction of the fire station and the acquisition of a fire truck. The Master District will pay the District annual interest of 6% and will fully reimburse the District on or before October 1, The Master District and Sienna Plantation Municipal Utility District No. 5 (MUD 5) entered into an agreement whereby MUD 5 will reimburse the Master District on behalf of all the Sienna South Districts. Mud 5 will pay interest to the Master District of 6% annually and will fully reimburse the Master District upon the occurrence of a triggering event, as defined by the agreement, or by October 1, 2020, whichever comes first. Note 9 Agreements with City of Missouri City The developers in Sienna Plantation have entered into the Sienna Plantation Joint Development Agreement with the City of Missouri City (the City), dated February 19, 1996, as amended (collectively, the Development Agreement ) which stipulates the City s regulatory authority over the development of Sienna Plantation, establishes certain restrictions and commitments related to the development of Sienna Plantation, sets forth detailed design and construction standards, stipulates a formula for determining the time of annexation of land within Sienna Plantation by the City and identifies and establishes a master plan for the development of Sienna Plantation. The development of all land within Sienna Plantation is governed by the provisions of the Development Agreement. In the Development Agreement, the City agrees not to annex the property in the District before such time as: (i) at least 90% of the developable acreage within such district has been developed with water, wastewater treatment and drainage facilities, and (ii) the Developer has been reimbursed to the maximum extent permitted by the rules of the TCEQ or the City assumes any obligation for such reimbursement. The District has also entered into a Strategic Partnership Agreement with the City dated March 19, 2001, which stipulates the City s regulatory authority over the District; stipulates a formula for determining the time of annexation of land within the District by the City and identifies and establishes a master plan for the development of the District. 29

82 Sienna Plantation Municipal Utility District No. 3 Notes to Basic Financial Statements September 30, 2012 Note 9 Agreements with City of Missouri City (continued) In both of the above agreements, the City agrees not to annex the property in any district before such time as: (i) at least 90% of the developable acreage within such district has been developed with water, wastewater treatment and drainage facilities; and (ii) the Developer has been reimbursed to the maximum extent permitted by the rules of the TCEQ or the City assumes any obligation for such reimbursement. The District has developed in excess of 90% of the developable acreage with water, sewer and drainage facilities. Note 10 Risk Management The District is exposed to various risks of loss related to torts: theft of, damage to and destruction of assets; errors and omissions; and personal injuries. The risk of loss is covered by commercial insurance. There have been no significant reductions in insurance coverage from the prior year. Settlement amounts have not exceeded insurance coverage for the current year or the three prior years. 30

83 Required Supplementary Information 31

84 Sienna Plantation Municipal Utility District No. 3 Required Supplementary Information Budgetary Comparison Schedule General Fund For the Year Ended September 30, 2012 Original and Final Budget Variance Positive (Negative) Actual Revenues: Water service $ 636,000 $ 953,810 $ 317,810 Sewer service 1,152,000 1,119,064 (32,936) Property taxes 3,335,782 3,592, ,423 Penalties and interest 60,000 26,935 (33,065) Tap connection and inspection 16,320 25,781 9,461 Surface water fees 550, ,617 (34,903) Miscellaneous 13,800 8,715 (5,085) Investment earnings 4,200 9,445 5,245 Total Revenues 5,768,622 6,251, ,950 Expenditures: Current service operations Purchased services 1,135,668 1,094,496 41,172 Professional fees 108, ,181 (23,181) Contracted services 545, ,732 (1,220) Repairs and maintenance 275, , ,183 Surface water 561, ,374 (97,619) Administrative 92,807 88,277 4,530 Other 62,040 52,161 9,879 Intergovernmental Contractual obligations 646, ,000 86,282 Master District replacement fund 91,194 97,104 (5,910) Transfer to Master District 273,037 (273,037) Total Expenditures 3,518,324 3,662,245 (143,921) Net change in fund balance 2,250,298 2,589, ,029 Fund Balance: Beginning of the year 3,075,755 3,075,755 End of the year $ 5,326,053 $ 5,665,082 $ 339,029 32

85 Sienna Plantation Municipal Utility District No. 3 Notes to Required Supplementary Information September 30, 2012 Budgets and Budgetary Accounting An annual unappropriated budget is adopted for the General Fund by the District s Board of Directors. The budget is prepared using the same method of accounting as for financial reporting. The budget was not amended during the fiscal year. 33

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87 Texas Supplementary Information 35

88 Sienna Plantation Municipal Utility District No. 3 TSI 1. Services and Rates September 30, Services provided by the District During the Fiscal Year: X Retail Water Wholesale Water X Solid Waste / Garbage X Drainage X Retail Wastewater Wholesale Wastewater Flood Control Irrigation Parks / Recreation X Fire Protection Roads Security X Participates in joint venture, regional system and/or wastewater service (other than emergency interconnect) Other (Specify): 2. Retail Service Providers (You may omit this information if your district does not provide retail services) a. Retail Rates for a 5/8" meter (or equivalent): Minimum Charge Minimum Usage Flat Rate (Y / N) Rate per 1,000 Gallons Over Minimum Usage Usage Levels Water: $ ,000 N $ ,001 to 20,000 $ ,001 to 30,000 $ ,001 to no limit Wastewater: $ Y to District employs winter averaging for wastewater usage? Yes X No Total charges per 10,000 gallons usage: Water $ Wastewater b. Water and Wastewater Retail Connections: Meter Size Total Connections $ Active Connections ESFC Factor Active ESFC'S Unmetered x 1.0 less than 3/4" 1,770 1,750 x 1.0 1,750 1" x 2.5 1, " x " x " x " x " x " x " x Total Water 2,490 2,462 3,831 Total Wastewater 2,331 2,304 x 1.0 2,304 See accompanying auditors' report. 36

89 Sienna Plantation Municipal Utility District No. 3 TSI 1. Services and Rates September 30, Total Water Consumption during the fiscal year (rounded to the nearest thousand): (You may omit this information if your district does not provide water) Gallons pumped into system: 186,597,000 * Water Accountability Ratio: (Gallons billed / Gallons pumped) Gallons billed to customers: 186,597, % 4. Standby Fees (authorized only under TWC Section ): (You may omit this information if your district does not levy standby fees) Does the District have Debt Service standby fees? Yes No X If yes, Date of the most recent commission Order: Does the District have Operation and Maintenance standby fees? Yes No X If yes, Date of the most recent commission Order: 5. Location of District (required for first audit year or when information changes, otherwise this information may be omitted): Is the District located entirely within one county? Yes X No County(ies) in which the District is located: Fort Bend County Is the District located within a city? Entirely Partly Not at all X City(ies) in which the District is located: Is the District located within a city's extra territorial jurisdiction (ETJ)? Entirely Partly Not at all X ETJs in which the District is located: Are Board members appointed by an office outside the district? Yes No X If Yes, by whom? * Purchased from Sienna Plantation MUD No. 1 See accompanying auditors report. 37

90 Sienna Plantation Municipal Utility District No. 3 TSI 2 General Fund Expenditures For the Year Ended September 30, 2012 Purchased services $ 1,094,496 Professional fees Legal 84,912 Audit 14,200 Engineering 32, ,181 Contracted services Bookkeeping 16,550 Operator 69,850 Garbage collection 434,911 Tap connection and inspection 25, ,732 Repairs and maintenance 159,883 Surface water 659,374 Administrative Directors fees 16,200 Printing and office supplies 41,936 Insurance 5,492 Other 24,649 88,277 Other 52,161 Intergovernmental Contractual obligations 560,000 Master District replacement fund 97,104 Transfer to Master District fire station 273, ,141 Total expenditures $ 3,662,245 Reporting of Utility Services in Accordance with HB 3693: Usage Cost Electrical N/A N/A Water N/A N/A Natural Gas N/A N/A See accompanying auditors report. 38

91 Sienna Plantation Municipal Utility District No. 3 TSI 3. Investments September 30, 2012 Identification or Certificate Number Interest Rate Maturity Date Balance at End of Year Fund General TexPool 78650/ Variable N/A $ 2,709,391 TexPool contract tax 78650/ Variable N/A 20,677 2,730,068 Debt Service TexPool 449/ Variable N/A 17,790 Capital Projects TexPool 78650/ Variable N/A 842,269 TexPool Restricted 78650/ Variable N/A 62, ,567 Total All Funds $ 3,652,425 See accompanying auditors report. 39

92 Sienna Plantation Municipal Utility District No. 3 TSI 4. Taxes Levied and Receivable September 30, 2012 Maintenance Taxes Debt Service Taxes Contract Taxes Totals Taxes Receivable, Beginning of Year $ 7,181 $ 24,403 $ 4,479 $ 36,063 Adjustments to prior years (25) (64) (14) (103) Adjusted receivable 7,156 24,339 4,465 35, Original Tax Levy 2,904, , ,613 4,356,907 Adjustments 123,544 38,607 23, ,316 Adjusted Tax Levy 3,028, , ,778 4,542,223 Total to be accounted for 3,035, , ,243 4,578,183 Tax collections: Current year 3,019, , ,090 4,528,722 Prior years 4,982 17,237 3,147 25,366 Total Collections 3,024, , ,237 4,554,088 Taxes Receivable, End of Year $ 11,175 $ 9,914 $ 3,006 $ 24,095 Taxes Receivable, By Years 2011 $ 9,001 $ 2,812 $ 1,688 $ 13, ,804 4, , , ,379 Taxes Receivable, End of Year $ 11,175 $ 9,914 $ 3,006 $ 24, Property Valuations: Land $ 155,644,030 $ 152,924,200 $ 149,014,310 $ 138,175,680 Improvements 476,584, ,823, ,808, ,712,980 Personal Property 11,820,823 10,987,970 11,855,190 12,644,123 Exemptions (13,184,495) (11,926,264) (10,880,991) (10,067,223) Total Property Valuations $ 630,864,358 $ 614,809,826 $ 610,796,929 $ 550,465,560 Tax Rates per $100 Valuation: Maintenance and operations $ 0.48 $ 0.18 $ 0.08 $ 0.05 Debt service tax rates Contract tax rate $ 0.72 $ 0.72 $ 0.73 $ 0.75 Adjusted Tax Levy: $ 4,542,223 $ 4,426,630 $ 4,458,817 $ 4,128,492 Percentage of Taxes Collected to Taxes Levied ** 99.70% 99.84% 99.92% % * Maximum Maintenance Tax Rate Approved by Voters: $1.10 on May 7, 1998 ** Calculated as taxes collected for a tax year divided by taxes levied for that tax year See accompanying auditors report. 40

93 Sienna Plantation Municipal Utility District No. 3 TSI 5. Long Term Debt Service Requirements Series 2004 by Years September 30, 2012 Due During Fiscal Year Ending Principal Due September 1 Interest Due March 1, September 1 Total 2013 $ 105,000 $ 8,600 $ 113, ,000 4, ,400 $ 215,000 $ 13,000 $ 228,000 See accompanying auditors' report 41

94 Sienna Plantation Municipal Utility District No. 3 TSI 5. Long Term Debt Service Requirements Series 2005 by Years September 30, 2012 Due During Fiscal Year Ending Principal Due March 1 Interest Due March 1, September 1 Total 2013 $ 100,000 $ 137,330 $ 237, , , , , , , , , , , , , , , , , , , ,000 98, , ,000 92, , ,000 84, , ,000 77, , ,000 69, , ,000 60, , ,000 50, , ,000 40, , ,000 29, , ,000 18, , ,000 6, ,240 $ 3,055,000 $ 1,481,120 $ 4,536,120 See accompanying auditors' report 42

95 Sienna Plantation Municipal Utility District No. 3 TSI 5. Long Term Debt Service Requirements Series 2005A by Years September 30, 2012 Due During Fiscal Year Ending Principal Due March 1 Interest Due March 1, September 1 Total 2013 $ 165,000 $ 215,820 $ 380, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 94, , ,000 79, , ,000 63, , ,000 46, , ,000 28, , ,000 9, ,450 $ 4,955,000 $ 2,326,265 $ 7,281,265 See accompanying auditors' report 43

96 Sienna Plantation Municipal Utility District No. 3 TSI 5. Long Term Debt Service Requirements Series 2005B by Years September 30, 2012 Due During Fiscal Year Ending Principal Due March 1 Interest Due March 1, September 1 Total 2013 $ 155,000 $ 252,928 $ 407, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,120,000 97,485 1,217, ,450,000 35,163 1,485,163 $ 5,425,000 $ 3,416,064 $ 8,841,064 See accompanying auditors' report 44

97 Sienna Plantation Municipal Utility District No. 3 TSI 5. Long Term Debt Service Requirements Series 2006 by Years September 30, 2012 Due During Fiscal Year Ending Principal Due March 1 Interest Due March 1, September 1 Total 2013 $ 175,000 $ 222,144 $ 397, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 98, , ,000 82, , ,000 65, , ,000 48, , ,000 29, , ,000 10, ,125 $ 5,260,000 $ 2,411,173 $ 7,671,173 See accompanying auditors' report 45

98 Sienna Plantation Municipal Utility District No. 3 TSI 5. Long Term Debt Service Requirements Series 2007 by Years September 30, 2012 Due During Fiscal Year Ending Principal Due March 1 Interest Due March 1, September 1 Total 2013 $ 175,000 $ 271,514 $ 446, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 95, , ,000 76, , ,000 56, , ,000 34, , ,000 11, ,756 $ 6,190,000 $ 3,337,744 $ 9,527,744 See accompanying auditors' report 46

99 Sienna Plantation Municipal Utility District No. 3 TSI 5. Long Term Debt Service Requirements Series 2008 by Years September 30, 2012 Due During Fiscal Year Ending Principal Due March 1 Interest Due March 1, September 1 Total 2013 $ 80,000 $ 373,213 $ 453, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,685, ,950 2,935, ,840,000 85,200 2,925,200 $ 6,315,000 $ 6,570,933 $ 12,885,933 See accompanying auditors' report 47

100 Sienna Plantation Municipal Utility District No. 3 TSI 5. Long Term Debt Service Requirements Series 2010 Refunding by Years September 30, 2012 Due During Fiscal Year Ending Principal Due March 1 Interest Due March 1, September 1 Total 2013 $ 440,000 $ 179,963 $ 619, , , , , , , , , , , , , , , , , , , , , , ,000 89, , ,000 74, , ,000 58, , ,000 41, , ,000 22, , ,000 6, ,188 $ 4,740,000 $ 1,444,598 $ 6,184,598 See accompanying auditors' report 48

101 Sienna Plantation Municipal Utility District No. 3 TSI 5. Long Term Debt Service Requirements Series 2010A Refunding by Years September 30, 2012 Due During Fiscal Year Ending Principal Due March 1 Interest Due March 1, September 1 Total 2013 $ 25,000 $ 187,850 $ 212, , , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 99, , ,000 86, , ,000 71, , ,000 52, , ,000 28, , ,000 8, ,400 $ 5,070,000 $ 1,919,200 $ 6,989,200 See accompanying auditors' report 49

102 Sienna Plantation Municipal Utility District No. 3 TSI 5. Long Term Debt Service Requirements Series 2012 Refunding by Years September 30, 2012 Due During Fiscal Year Ending Principal Due March 1 Interest Due March 1, September 1 Total 2013 $ 20,000 $ 96,194 $ 116, ,000 95, , ,000 94, , ,000 91, , ,000 88, , ,000 85, , ,000 82, , ,000 77, , ,000 70, , ,000 63, , ,000 56, , ,000 48, , ,000 40, , ,000 32, , ,000 23, , ,000 14, , ,000 4, ,900 $ 2,795,000 $ 1,066,161 $ 3,861,161 See accompanying auditors' report 50

103 Sienna Plantation Municipal Utility District No. 3 TSI 5. Long Term Debt Service Requirements All Bonded Debt Series by Years September 30, 2012 Due During Fiscal Year Ending Principal Due March 1, September 1 Interest Due March 1, September 1 Total 2013 $ 1,440,000 $ 1,945,556 $ 3,385, ,490,000 1,889,230 3,379, ,555,000 1,830,690 3,385, ,610,000 1,772,690 3,382, ,675,000 1,710,968 3,385, ,735,000 1,645,956 3,380, ,805,000 1,576,790 3,381, ,885,000 1,501,517 3,386, ,965,000 1,420,456 3,385, ,050,000 1,334,747 3,384, ,140,000 1,244,647 3,384, ,235,000 1,149,777 3,384, ,335,000 1,049,756 3,384, ,440, ,693 3,384, ,570, ,833 3,403, ,700, ,618 3,415, ,865, ,680 3,452, ,035, ,073 3,484, ,155, ,625 3,440, ,335,000 96,956 3,431,956 $ 44,020,000 $ 23,986,258 $ 68,006,258 See accompanying auditors' report 51

104 Sienna Plantation Municipal Utility District No. 3 TSI 6. Change in Long Term Bonded Debt September 30, 2012 Bond Issue Series 2004 Series 2005 Series 2005A Series 2005B Series 2006 Interest rate 4.00% 4.50% 4.80% 4.00% 5.00% 4.10% 4.85% 4.00% 5.00% Dates interest payable 3/1; 9/1 3/1; 9/1 3/1; 9/1 3/1; 9/1 3/1; 9/1 Maturity dates 9/1/12 to 9/1/14 3/1/10 to 3/1/30 3/1/10 to 3/1/30 3/1/08 to 3/1/30 3/1/08 to 3/1/30 Beginning bonds outstanding $ 2,955,000 $ 3,150,000 $ 5,110,000 $ 5,585,000 $ 5,425,000 Bond issued during the year Bonds refunded during the year (2,640,000) Bonds retired during the year (100,000) (95,000) (155,000) (160,000) (165,000) Ending bonds outstanding $ 215,000 $ 3,055,000 $ 4,955,000 $ 5,425,000 $ 5,260,000 Interest paid during fiscal year $ 140,169 $ 141,717 $ 223,820 $ 259,858 $ 229,769 Paying agent's name and city Series 2001 Series 2012 All other series Bank of New York Trust Co. NA, Houston, Texas Wells Fargo Bank, N.A., Dallas, Texas Wells Fargo Bank, N.A., Houston, Texas Bond Authority: Water, Sewer and Drainage Refunding Fire Facilities Amount Authorized by Voters $ 48,800,000 $ 29,280,000 $ 440,000 Amount Issued (48,800,000) (705,000) (440,000) Remaining To Be Issued $ $ 28,575,000 $ All bonds are secured with tax revenues. Bonds may also be secured with other revenues in combination with taxes. Debt Service Fund cash and temporary investments balances as of September 30, 2012: $ 1,080,687 Average annual debt service payment (principal and interest) for remaining term of all debt: $ 3,400,313 See accompanying auditors report. 52

105 Series 2007 Series 2008 Bond Issue Series 2010 Refunding Series 2010A Refunding Series 2012 Refunding Totals 4.00% 4.75% 5.00% 6.00% 3.00% 4.50% 2.00% 4.00% 2.00% 4.00% 3/1; 9/1 3/1; 9/1 3/1; 9/1 3/1; 9/1 3/1; 9/1 3/1/09 to 3/1/32 3/1/11 to 3/1/32 3/1/11 to 3/1/26 3/1/11 to 3/1/28 3/1/13 to 3/1/29 $ 6,355,000 $ 6,400,000 $ 5,065,000 $ 5,180,000 $ $ 45,225,000 2,795,000 2,795,000 (2,640,000) (165,000) (85,000) (325,000) (110,000) (1,360,000) $ 6,190,000 $ 6,315,000 $ 4,740,000 $ 5,070,000 $ 2,795,000 $ 44,020,000 $ 278,314 $ 377,755 $ 191,438 $ 189,200 $ 24,098 $ 2,056,138 53

106 Sienna Plantation Municipal Utility District No. 3 TSI 7a. Comparative Schedule of Revenues and Expenditures General Fund For the Last Five Fiscal Years Amounts Revenues: Water service $ 953,810 $ 843,560 $ 730,145 $ 734,328 $ 619,613 Sewer service 1,119,064 1,147,546 1,216,259 1,132,610 1,059,512 Property taxes 3,592,205 1,657,388 1,034, , ,645 Penalties and interest 26,935 65,557 51,283 60,632 55,733 Tap connection and inspection 25,781 39,038 92, , ,145 Surface water fees 515, , , , ,029 Miscellaneous 8,715 16,657 18,995 13,594 17,798 Investment earnings 9,445 5,277 3,711 15,666 40,445 Total Revenues 6,251,572 4,455,055 3,521,836 3,207,251 2,705,920 Expenditures: Current service operations Purchased services 1,094,496 1,195,469 1,199,004 1,277,812 1,081,431 Professional fees 131,181 92,729 92, , ,710 Contracted services 546, , , , ,441 Repairs and maintenance 159, , , , ,113 Surface water 659, , , , ,657 Administrative 88,277 87,212 84,831 82,241 75,693 Other 52,161 65,671 95,664 44,059 45,965 Capital outlay 196, ,000 Intergovernmental Contractual obligations 560, , ,297 Master District replacement fund 97, ,091 29,431 Transfer to Master District 273, ,154 Total Expenditures 3,662,245 3,786,468 3,497,903 3,099,968 2,196,010 Excess of revenues over expenditures $ 2,589,327 $ 668,587 $ 23,933 $ 107,283 $ 509,910 *Amount negligible See accompanying auditors report. 54

107 Percent of Fund Total Revenues % 19% 21% 23% 23% 18% 26% 35% 36% 39% 57% 38% 29% 24% 20% 1% 1% 1% 2% 2% 1% 1% 3% 6% 8% 8% 15% 11% 9% 6% * * * * 1% * * * * 1% 100% 100% 100% 100% 100% 18% 27% 34% 40% 40% 2% 2% 3% 3% 4% 9% 12% 16% 18% 22% 3% 5% 7% 6% 4% 11% 15% 11% 11% 7% 1% 2% 2% 3% 3% 1% 1% 3% 1% 2% 6% 15% 9% 12% 17% 2% 2% 1% 4% 6% 60% 84% 100% 97% 82% 40% 16% 0% 3% 18% 55

108 Sienna Plantation Municipal Utility District No. 3 TSI 7b. Comparative Schedule of Revenues and Expenditures Debt Service Fund For the Last Five Fiscal Years Amounts Revenues: Property taxes $ 949,579 $ 2,781,572 $ 3,408,414 $ 3,389,621 $ 2,889,113 Penalties and interest 39,499 41,640 36,336 58,850 74,171 Accrued interest on bonds at date of sale 4,820 27,459 19,494 24,119 Investment earnings 8,755 15,988 37,372 44, ,783 Total Revenues 1,002,653 2,839,200 3,509,581 3,512,363 3,130,186 Expenditures: Tax collection services 79,168 80,866 62,011 89,101 80,506 Debt service Principal 1,360,000 1,290,000 1,170,000 1,035, ,000 Interest and fiscal agent fees 2,062,688 2,104,798 2,247,074 2,261,099 1,949,976 Debt issuance costs 172, ,209 Total Expenditures 3,674,433 3,475,664 3,873,294 3,385,200 2,880,482 Excess (deficiency) of revenues over (under) expenditures $ (2,671,780) $ (636,464) $ (363,713) $ 127,163 $ 249,704 Total Active Retail Water Connections 2,462 2,452 2,416 2,386 2,277 Total Active Retail Wastewater Connections 2,304 2,297 2,261 2,234 2,152 *Percentage negligible See accompanying auditors report. 56

109 Percent of Fund Total Revenues % 98% 97% 96% 92% 4% 1% 1% 2% 2% * 1% 1% 1% 1% 1% 1% 1% 5% 100% 100% 100% 100% 100% 8% 3% 2% 3% 3% 136% 45% 33% 29% 27% 206% 74% 64% 64% 62% 17% 11% 367% 122% 110% 96% 92% (267%) (22%) (10%) 4% 8% 57

110 Sienna Plantation Municipal Utility District No. 3 TSI 8. Board Members, Key Personnel and Consultants September 30, 2012 Complete District Mailing Address: District Business Telephone Number: 3200 Southwest Freeway, Suite 2600, Houston, Texas Submission Date of the most recent District Registration Form (TWC Sections and ): May 23, 2012 Limit on Fees of Office that a Director may receive during a fiscal year: (Set by Board Resolution TWC Section ) $ 7,200 Names: Board Members: Term of Office (Elected or Appointed) or Date Hired Fees of Office Paid * Expense Reimbursements Title at Year End Robert Coltharp 5/10 to 5/14 $ 3,300 $ 1,033 President Don Trull 5/12 to 5/16 3,000 1,339 Vice President Ray Sick 5/12 to 5/ Assistant Vice President Kathy Bender 5/08 to 5/14 3,450 1,688 Secretary Mark Parsons 5/12 to 5/16 1,350 1,004 Assistant Secretary Terrie Gornet 5/08 to 5/12 2, Former Director J. Neal Vogan 5/08 to 5/12 2, Former Director Amounts Consultants: Paid Allen Boone Humphries Robinson LLP 2003 $ 127,942 Attorney SI Environmental, LLC ,459 Operator Southwest Water Company ,813 Former Operator McLennan and Associates ,547 Bookkeeper Tax Tech, Inc ,758 Tax Collector Fort Bend Central Appraisal District Legislation 26,810 Property Valuation Perdue, Brandon, Fielder, ,737 Delinquent Tax Collins & Mott, L.L.P. Attorney LJA Engineering and Surveying ,241 Engineer McGrath & Co., PLLC Annual 15,900 Auditor RBC Capital Markets ,717 Financial Advisor * Fees of Office are the amounts actually paid to a director during the District's fiscal year. See accompanying auditors report. 58

111 APPENDIX C SPECIMEN MUNICIPAL BOND INSURANCE POLICY MUNICIPAL BOND INSURANCE POLICY ISSUER: [NAME OF ISSUER] Policy No: MEMBER: [NAME OF MEMBER] BONDS: $ in aggregate principal amount of [NAME OF TRANSACTION] [and maturing on] Effective Date: Risk Premium: $ Member Surplus Contribution: $ Total Insurance Payment: $ BUILD AMERICA MUTUAL ASSURANCE COMPANY ( BAM ), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the Trustee ) or paying agent (the Paying Agent ) for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner s right to receive payment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner s rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. Business Day means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. Due for Payment means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. Nonpayment means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. Nonpayment shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. Notice means delivery to BAM of a notice of claim and certificate, by certified mail, or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. Owner means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that Owner shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.